Employee Medicare : With Medicare updates coming in 2025, employers must understand how to support their Medicare-eligible employees while complying with Medicare Secondary Payer (MSP) rules. This guide outlines the basics of medicare, essential dos and don’ts for employers, and practical strategies for educating employees as they approach Medicare eligibility.
What is Medicare? An Overview for Employers
Medicare is a federal health insurance program primarily designed for U.S. citizens aged 65 and older, specifically younger people with qualifying medical conditions. Medicare consists of different parts:
Medicare Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing care, hospice, and limited home health care. Part A is premium-free for most individuals but may vary based on Social Security work credits.
Medicare Part B (Medical Insurance): Covers services like doctor visits, outpatient care, and medical supplies. For 2025, Part B premiums start at $185.70 per month, with higher premiums for individuals with higher incomes.
Medicare Part C (Medicare Advantage): Medicare Advantage plans, offered by private insurers approved by Medicare, are an alternative to traditional Medicare. These plans typically include Parts A, B, and D (prescription drug coverage) and may offer additional dental and vision care benefits.
Medicare Part D (Prescription Drug Coverage): This part helps cover prescription drug costs through private insurance companies.
Employee Medicare: Eligibility and Enrollment for Employees
Generally, employees are eligible for Medicare three months before they turn 65, though some with specific disabilities or medical conditions may qualify earlier. Importantly, enrollment in Medicare isn’t automatic unless an individual is already receiving Social Security benefits at age 65.
Coordination of Benefits: Understanding Primary and Secondary Payers
Medicare uses a system of “primary” and “secondary” payers to coordinate benefits when multiple health insurance plans cover an individual. Here’s how it works based on employer size and employee status:
For Employers with Under 20 Employees: Medicare pays first for employees 65 and older, and the group health plan covers the remaining costs.
For Employers with 20 or More Employees: If the employee (or their spouse) is still working and enrolled in the employer’s health plan, the group health plan is the primary payer. Medicare becomes the secondary payer, covering the remaining costs after the group plan.
Special Situations: For retirees or individuals on COBRA, Medicare usually becomes the primary payer, regardless of the company size
Common Employer Questions on Medicare and Compliance
- Can Employers Encourage Employees to Switch to Medicare?
MSP rules prevent employers from offering financial or other incentives to encourage Medicare-eligible employees to choose Medicare over the company’s health plan. Doing so could result in penalties.
However, employers can offer educational resources, such as informational pamphlets or sessions during open enrollment, to help employees understand their Medicare options.
- Can Employers Pay for Employees’ Medicare Premiums?
Generally, not directly reimbursing employees for Medicare premiums is considered an incentive, which violates MSP rules. There are exceptions, though:
- Individual Coverage Health Reimbursement Arrangements (ICHRA): Employers with fewer than 20 employees may offer an ICHRA that reimburses employees for Medicare Part B or Part D premiums. It must comply with specific conditions, including integration with a group health plan.
- Medicare Reimbursement for Small Employers:Employers with fewer than 20 employees may reimburse Medicare premiums if specific criteria are met, such as offering a qualifying health plan and making reimbursements only available to Medicare Parts A and B employees.
- Is a Cash-Out Option Allowed for Medicare-Eligible Employees?
Yes, if offered equally. Employers can provide a taxable cash-out option (such as a cafeteria plan) for employees who waive group health coverage. The key is to ensure that the option is offered to all employees, regardless of whether they are eligible for Medicare.
For example, a cafeteria plan allows employees to choose between health benefits or a cash-out option if they already have other health insurance, including Medicare. This arrangement is permitted under MSP rules as long as all employees have equal access.
- Medicare Advantage and Part D Enrollment Options for Employees Losing Coverage
Employees who lose group health coverage have a Special Enrollment Period to sign up for Medicare Part C (Medicare Advantage) and Part D. This enrollment window lasts two months after their coverage ends and is available for active, retiree, and COBRA coverage participants.
In this scenario, Medicare becomes the primary payer by default, and the former group health plan no longer covers costs.
Penalties for Non-Compliance with Medicare Rules
Employers should avoid offering Medicare-specific incentives or any special arrangements for Medicare-eligible employees. Violating MSP rules can lead to penalties of up to $5,000 per incident. If there are questions about what’s permissible, it’s essential to consult with legal or benefits professionals.
Steps Employers Can Take to Educate and Support Medicare-Eligible Employees
Provide Clear Information: Help employees understand their options without pushing them toward Medicare. Information about Medicare basics, enrollment periods, and costs can help employees make informed decisions.
Offer Access to a Medicare Expert: Employers can bring in Medicare consultants or provide contact information for Medicare counselors who can accurately answer employee questions.
Prepare for Open Enrollment: During open enrollment, include Medicare information for those turning 65 soon. This will give employees time to consider options before the enroll.
Stay Updated on Medicare Changes: Medicare regulations change regularly, including premium rates, income thresholds, and coverage details. Employers should stay informed of these updates to provide employees with the most accurate information.
Important Medicare changes in 2025 to consider:
Medicare Part B Premium Adjustments: In 2025, the standard monthly Part B premium will be $185.70; those earning more may pay more.
Expanded Medicare Advantage Benefits: Many Medicare Advantage plans offer additional benefits, including dental, vision, hearing, and wellness programs. This might make Medicare Advantage a more attractive option for some employees.
Medicare Part D Prescription Updates: In 2025, new caps on out-of-pocket prescription costs will be introduced, making Medicare Part D more affordable for some seniors.
Helping Medicare: Eligible employees that understand their health insurance options can result in better health outcomes and may reduce company costs over time. While employers can’t incentivize employees to leave company health plans for Medicare, providing access to Medicare information is both compliant and beneficial.
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