Medicare Essentials for Employers
A recent Nationwide survey revealed that many workers are delaying retirement amid record-high inflation. And with more employees embracing remote work opportunities, those who are at or near retirement age may be more likely to work past 65.
If you have employees in this age group, you should be prepared to answer questions about:
- Medicare enrollment (whether it’s mandatory and when they must enroll)
- The differences among Medicare Parts A, B, C and D
- What happens to their health savings account if they subscribe to Medicare
- What to do about Medicare if they sign up for Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage when they retire
- How enrollment in Medicare affects their Social Security benefits
Let’s take a look at some Medicare fundamentals to address all of these topics and more.
Medicare enrollment basics
You are not obligated to enroll your employees in Medicare, but it’s a good idea to learn who Medicare applies to, what each Medicare Part covers and how each Part applies. This will help you steer employees in the right direction if they ask questions about Medicare enrollment.
People age 65 and older may enroll in Medicare. There is a seven-month initial enrollment period that starts three months before an individual turns 65. This period includes the month they turn 65, so it expires three months after the month of their 65th birthday. While the person has the entire seven-month window to apply, the Department of Health and Human Services (HHS) recommends they apply for Medicare benefits three months ahead of their birthday.
If someone is collecting Social Security due to disability or retirement, they are automatically enrolled in Medicare Parts A and B when they first become eligible. They can opt out of Part B but can only decline Part A if they withdraw their original Social Security application and pay back SSA cash benefits.
An employee may receive some Social Security benefits while still working. In that case, they would be automatically enrolled in Medicare Parts A and B when they turn age 65. Employees in this situation should think about whether they want to opt out of Part B and continue with any applicable employer-provided group health plan coverage in its place.
Medicare Parts A, B, C and D
There are four parts to Medicare: Parts A, B, C and D. Let’s briefly look at what each of these covers below.
Medicare Part A
In general, people enrolled in Medicare Part A receive coverage without paying monthly premiums. According to the Centers for Medicare & Medicaid Services (CMS) booklet Enrolling in Medicare Part A & B, a monthly premium for Part A coverage generally isn’t required if the employee (and their spouse) have paid Medicare taxes for at least 10 years while working. If they don’t meet that threshold, a monthly premium may apply. Therefore, most employees are likely to enroll in Medicare Part A, even if they have health insurance through their employer.
Part A generally covers:
- Inpatient hospital care
- Care at skilled nursing facilities
- Home health care
- Long-term nursing home stays
- Hospice care
If an individual gets Part A for free, they don’t pay a late enrollment penalty if they decide to enroll after they first become eligible, CMS explains. But if they aren’t eligible for free Part A coverage and they don’t buy it when they first become eligible, their monthly premiums could go up. In that case, they would end up paying the higher premium for twice the number of years they could have had Part A but didn’t sign up for it. However, an individual can avoid penalties if they qualify for a special enrollment period (SEP). This is where your employer-sponsored health plan may come in.
If the individual is covered under a group health plan, they may qualify for an SEP to sign up for Part A (and/or Part B, discussed below). The individual or their spouse must be working and covered under an employer or union plan.
The CMS notes that COBRA and retiree health plans are not considered coverage based on current employment. Therefore, an individual receiving benefits under either type of plan wouldn’t be eligible for an SEP when that coverage ends.
If an individual doesn’t qualify for an SEP, they may have to wait until Medicare’s general enrollment period (GEP), which runs from Jan. 1 to March 31. If they sign up for Medicare during the GEP, their coverage starts July 1 of that year.
Medicare Part B
Medicare Part B generally covers:
- Medically necessary services and supplies
- Ambulance services
- Durable medical equipment
- Mental health treatment and hospitalization
- Outpatient prescription drugs
Part B coverage requires a monthly premium.
Medicare Part C
Medicare Part C allows an individual to select a Medicare Advantage Plan (also referred to as an MA Plan), such as an HMO or a PPO, as their health plan, HHS explains. A Medicare Part C plan provides an umbrella under which Part A and B coverage sit. Like an employer-sponsored health plan, the plan may provide additional coverage for dental, vision, and health and wellness benefits. The premiums for those benefits are reflected in what the individual pays.
Medicare Part D
Medicare Part D provides prescription drug coverage to Medicare-eligible individuals. Most Medicare Part C plans include Part D benefits. Failure to carry prescription drug coverage that’s at least equal to what Medicare offers could subject an individual to a late enrollment penalty. Late enrollment penalties are calculated based on how long an individual has gone without carrying Part D coverage or creditable prescription coverage, which meets or exceeds the value of prescription drug coverage provided under Medicare Part D.
Generally, fully insured and self-funded employer-sponsored health plans, unions and multiple- employer welfare arrangements that sponsor employee and retiree health plans must disclose their creditable or non-creditable status to Medicare-eligible individuals. This disclosure must be provided before Oct. 15 of every year and:
- Before an individual’s Part D enrollment begins
- Before an employer-sponsored plan’s effective date of coverage (if the individual is eligible for Medicare)
- Whenever the creditable status of the plan’s prescription drug coverage changes or the coverage ends
- Whenever an eligible individual requests it
If the coverage isn’t creditable, the disclosure must include an explanation of the limitations of Part D enrollment periods and late enrollment penalties. CMS provides model forms on creditable and non-creditable coverage (available in English and Spanish).
You must also report your creditable/non-creditable status to CMS every year, at least 60 days prior to the start of the plan year.
As a best practice, consult with an employee benefits attorney. They can offer guidance on how to comply with Part D creditable prescription coverage determination, notice and disclosure requirements.
Impact of employer size on Medicare enrollment
If an employee has Medicare and another form of insurance, such as an employer-sponsored group health plan, retirement coverage or Medicaid, Medicare is considered either the primary or the secondary payer for medical costs. Each of the coverage types is referred to as a payer, and when there’s more than one payer, a coordination of benefits takes place to determine which payer pays first.
A primary payer pays what it owes first. A secondary, or other supplemental payer, then pays what the primary payer didn’t cover.
The CMS notes that if a group health plan or retiree coverage is the secondary payer, the individual may need to enroll in Medicare Part B before the secondary insurance will pay.
If an employee is 65 or older and has group health insurance based on their or their spouse’s employment status, the applicable employer’s size governs payer status. For instance, if the employer has 20 or more employees, the group health plan pays first, and then Medicare pays. If the group health plan doesn’t cover the whole bill, the individual should submit it to Medicare for secondary payment with the understanding that they may have to pay out of pocket for any costs that neither the primary nor the secondary payer covered.
Employers with 20 or more employees must provide employees age 65 and older with the same health benefits under the same conditions that they offer to other employees, including spousal coverage.
If an employer has fewer than 20 employees and isn’t part of a multiemployer group health plan, Medicare is the primary payer and the group health plan is the secondary payer. But if the employer is part of a multiemployer or multiple-employer group health plan and at least one of those employers has 20 or more employees, then the group health plan is the primary payer and Medicare pays second.
If an employee receives treatment through an HMO or PPO that pays first and they receive services out of network, it’s possible that neither Medicare nor their plan will cover those services. Therefore, an individual should call their plan to find out if it will cover out-of-network services.
If an employee age 65 or older drops their employer-offered health care coverage, Medicare would pay first. That’s unless they have coverage through their spouse and the spouse’s employer has 20 or more employees or is part of a multiemployer plan where at least one of the employers meets this threshold.
If an employee is injured in the course and scope of employment or sustains a job-related illness for which workers’ compensation benefits are due, the workers’ compensation provider pays first. Medicare may make conditional payments if the workers’ compensation provider denies payment. CMS provides further guidance on how Medicare payments interact with workers’ compensation claims.
You can also refer employees to Medicare’s Coordination of Benefits pamphlet, which includes a chart that explains who pays first based on employer size.
COBRA and Medicare enrollment
If an employee defers their enrollment in Medicare, an eight-month SEP applies. The SEP starts in the month following the end of their employment or the end of their group health insurance, whichever comes first. According to Medicare.gov, it’s important for individuals to avoid gaps in coverage and the Part B late enrollment penalty.
Therefore, COBRA-eligible individuals should know they have eight months to sign up for Part B without a penalty, whether they elect COBRA coverage or not. (Note that COBRA coverage may last as long as 36 months in some cases.) If they miss their enrollment period, they must wait until the GEP. In this case, they could face a coverage gap and a lifetime Part B late enrollment penalty.
Medicare.gov provides additional information on avoiding late penalties. This information is especially beneficial for employees seeking to understand the additional monthly premium fees they may need to pay if they are assessed Medicare Part A, B or D penalties. Medicare.gov also provides useful tips on how they can lower their Medicare costs.
HSAs and Medicare enrollment
Employees may have questions about the impact of Medicare enrollment on their high-deductible health savings accounts (HSAs). These HSAs provide a pretax way to set aside money for qualified medical expenses.
Medicare enrollment disqualifies an individual from HSA eligibility. CMS recommends that employees reach out to their employee benefits manager for guidance on whether they should enroll in Part A. If they are eligible for premium-free Part A, coverage begins retroactively six months prior to enrollment. They must stop making HSA contributions by then or they could be subject to tax penalties.
Once the retroactive six-month Medicare Part A coverage starts, the HSA administrator should change the employee’s contribution rate to $0. The employee can still withdraw funds to pay for qualified medical expenses out of their HSA during that time.
An employee could delay enrolling in Medicare to keep their HSA, but if your organization has fewer than 20 employees, they need to be careful. Since Medicare is generally the primary payer for organizations with less than 20 employees, the employer-sponsored group health insurance plan would be the secondary payer. If an employee elects to defer their enrollment in Medicare thinking this will give them a way to pay for health-care related expenses through their HSA, they could find themselves in a very bad financial situation. That’s because the secondary payer would only pay after Medicare pays. The employee may end up paying for their medical bills out of pocket.
For employees who prefer a high-deductible health plan with an HSA, a good option may be a Medicare Medical Savings Account (MSA). An MSA plan may combine a special type of high-deductible Medicare Advantage Plan (Part C) with an MSA, which operates like a traditional HSA. But, unlike an HSA, an MSA does not cover Medicare Part D prescription drug costs. If someone wants to set money aside for that, they will need to secure a separate Medicare drug plan. Medicare.gov’s plan finder can be a helpful resource for employees in this situation. But for specific questions about taxes and penalties, advise employees to consult a tax professional.
Additional resources for navigating Medicare
CMS and the Social Security Administration (SSA) both provide resources that explain what employees can do once they reach age 65 and how their income can affect their Medicare premiums. For instance, you can direct them to these resources:
- The SSA fact sheet How to Apply for Medicare Part B (Medical insurance) During Your Special Enrollment Period
- The CMS website, which outlines:
- The CMS fact sheet Deciding Whether to Enroll in Medicare Part A and Part B When You Turn 65, which offers guidance on:
- How to determine their initial enrollment period
- Whether they should enroll in Medicare Parts A and B when they turn 65
- How to sign up for (or opt out of) either
- How COBRA and HSAs interact with Medicare
The CMS website also provides a basic overview for employees working past age 65, which includes a handy chart on the implications of waiting to enroll and decision-making guidance.
Finally, the CMS Medicare and You handbook provides up-to-date information regarding Medicare for qualified individuals, plan options, creditable prescription drug coverage and more.
Your employee benefits provider may also be a good resource for helping employees understand:
- Whether your group health plan is the primary or secondary payer
- The enrollment penalties they could face for deferring specific Medicare Part enrollments
- How to navigate HSAs when Medicare applies
Medicare is a fact of life for a growing number of aging employees in the United States. With some planning and preparation, you can help guide them through a complicated Medicare enrollment process. Effectively communicating with employees when they reach out for assistance can go a long way toward maintaining a good working relationship.
This content is for informational purposes only, should not be considered professional, financial, medical or legal advice, and no representations or warranties are made regarding its accuracy, timeliness or currency. With all information, consult with appropriate licensed professionals to determine if implementing any recommendations would be in accordance with applicable laws and regulations or to obtain advice with respect to any particular issue or problem.