On The Topic Of Medicare

Because we're talking about Medicare, it seems like a good time to provide a reminder of the implications of Medicare for employer-provided health coverage. Medicare is a federal program providing benefits to the aged and disabled, as well as individuals with end-stage renal disease. Medicare provides some secondary payer rules, meaning that Medicare pays secondary to employer group coverage. It is essential for employers to be diligent about complying with these rules. Following is a brief summary of those rules:

• Working Aged Rules: The MSP rule relating to working aged rules is applicable to employers with 20 or more employees. For purposes of the MSP Rules, the "working aged" are individuals in current employment status that are aged 65 or over and spouses aged 65 or older of individuals with current employment status.
• Certain Disabled Individuals: The MSP rule relating to certain disabled individuals is applicable to employers with 100 or more employees. For purposes of the MSP Rules, disabled individuals are defined as currently employed individuals with a disability under the age of 65 who have coverage through a large group health plan. This includes self-employed individuals and disabled dependents of currently employed individuals.
• Individuals with End Stage Renal Disease: The MSP rule relating to end-stage renal disease applies without regard to employer size, current employment status, or the source of health coverage. Medicare is the secondary payer through the 30-month coordination period.

Prohibited Acts

Group health plans are prohibited from the following acts:

1. Failing to pay primary benefits;
2. Offering coverage secondary to Medicare;
3. Denying or terminating coverage;
4. Imposing limits on benefits, such as providing less coverage, specifying additional exclusions, or reducing benefits, as well as imposing higher deductibles or co-pays, lower annual or lifetime limits, or longer waiting periods;
5. Imposing stricter preexisting condition limitations;
6. Paying a provider or supplier less favorably;
7. Providing misleading or incomplete plan information to induce rejection of employer plan;
8. Including notice in a plan's brochure, claim forms, and other plan material that Medicare would be billed first without stating applicability of MSP rules to the plan;
9. Refusing to enroll a Medicare-eligible individual; and
10. Providing financial or other incentive to Medicare individuals as a means to prevent, terminate, or discourage enrollment or continued participation in the group health plan, or to purchase a Medicare supplement policy for the individual.

There are significant penalties for not complying with these rules. For instances in which an employer or other entity offers any financial or other incentive to Medicare-eligible individuals to not enroll in a plan that would otherwise be primary, the penalty is $11,524 per violation. In addition, willful or repeated failures to provide timely and accurate information relating to an employee's group health insurance coverage, when requested, could result in a $1,877 per violation penalty.

Medicare and COBRA

As mentioned above, the MSP Rules relating to disability and age are contingent on current employment status. This raises an important consideration for individuals moving from current employment status to COBRA. An individual who becomes covered by Medicare prior to the date COBRA is elected is entitled to elect and maintain COBRA. Conversely, if Medicare coverage arises after the date the person has elected COBRA, the COBRA plan may, and most often does, provide that COBRA ends as a result of the Medicare coverage.

Entitlement to COBRA notwithstanding, an individual must carefully consider access to Medicare — particularly Medicare Part B. An individual becomes entitled to Medicare due to age when they turn 65. If the individual does not enroll when first eligible, and they continue to be covered by an employer-sponsored group health plan subject to the working-aged rules described above (20 or more employees), a special enrollment opportunity arises when the group coverage ends. Importantly, this special enrollment opportunity occurs when group coverage due to current employment status ends and not at the end of COBRA.

If employment ends or the employer-provided medical coverage ends, an individual has eight months from that month (whichever comes first) to sign up for Medicare Part B. This will prevent a delay in coverage and possible penalty. An individual who fails to enroll in a timely manner would be subject to Medicare Part B's general enrollment period, which is available from January 1 through March 31, with coverage effective on the first of the month following the month the individual enrolls. Unlike Medicare Part B, Medicare Part D does provide a special enrollment opportunity upon exhaustion of COBRA.

Health Savings Accounts and Medicare Interaction

Under the current eligibility rules for contributing to a Health Savings Account (HSA), an individual becomes ineligible to make an HSA contribution on the first day of the month that he/she becomes covered by Medicare. If the individual is merely eligible for Medicare, but has not yet enrolled in Medicare, HSA contributions can continue to be made. However, this could become problematic in the event that Medicare coverage is made retroactive.

When an individual delays applying for Medicare, and that Medicare coverage is made retroactive, the individual must calculate how many months of the year in question he/she is actually HSA-eligible. The HSA contribution for that year must be pro-rated accordingly.

If, for example, an individual enrolls in Medicare during October of 2025, and Medicare coverage is made retroactive to April 1, 2025, the individual would only be HSA-eligible for three months of 2025 (January, February, and March). In this scenario, the maximum contribution this individual could contribute for the 2025 tax year would be $1,325, which equates to one quarter of the annual statutory limit of $4,300, plus one quarter of the $1,000 catch-up contribution. If the individual in this scenario ends up contributing too much to the HSA, he/she could withdraw the excess monies, together with earnings thereon. As long as this is accomplished prior to the individual's tax filing due date with extensions, no excise tax would be imposed; however, withholding of employment taxes would be assessed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.