It seems like something a company should be able to do – pay for Medicare premiums for Medicare-eligible employees. The employee has medical coverage through Medicare and the employer’s medical premiums are reduced by not having an older employee on the census. As the country’s workforce is aging, the number of working Medicare-eligible employees is approaching 30%. An employer who wants to pay for Medicare premiums is a win-win, right?
Well, unfortunately, it’s actually illegal for an employer to force or incent an employee to move to Medicare and off their group medical plan. Don’t even suggest it. But for some employees, the move can make sense. And, in limited cases, as we’ll see in this article, an employer can legally pay for the premiums through an ICHRA.
In January, 2020, the IRS rolled out Individual Coverage Health Reimbursement Arrangements (ICHRA). These new plans allow employers to pay for individual insurance premiums, which include Medicare Part A, B and C premiums, for a class of employee who is not eligible for the group medical plan, provided one exists.
The regulations permit several employee classifications:
- Full-time employees (if no group medical plan is offered)
- Part-time employees
- Employees who are paid on a salaried basis
- Hourly employees
- Employees whose primary site of employment is in the same rating area (as defined under health care reform’s rules for establishing individual market premiums)
- Seasonal employees (as defined under IRS Code §4980H or the Code §105 regulations, as elected by the ICHRA sponsor)
- Employees included in a unit covered by a collective bargaining agreement (or an appropriate related participation agreement)
- Employees who have not satisfied a waiting period for coverage (e.g. the new hire probationary period)
- Nonresident aliens with no U.S.-based income
- Employees hired for temporary placement at an unrelated entity
- Employees who are in a combination of two or more of the classes (e.g., full-time employees covered by a particular collective bargaining agreement).
Let’s take an example: An employer with an aging population has four full-time employees over the age of 65. The employer pays 100% of the employee only premium. The employer would be giddy to have these employees to get off the group medical plan and go on Medicare Parts A, B and C.
In this example, the employer would not be allowed to reimburse for Medicare premiums because the employees work full time AND there is a group medical plan in place. If those four employees worked part-time (or met another classification) then we would have a different scenario. An ICHRA could be offered to part-time employees as a class of employees who are not eligible for group medical coverage. Keep in mind that, even in this scenario, the employer would have to offer all part-time employees premium reimbursement for their individual medical insurance premiums – not just the Medicare-eligible ones. “Part-time employees” is a legitimate classification of employee, “Medicare-eligible employees” is not an eligible classification of employee.
Now, if an employer does not offer a group medical plan – no matter the size of the employer – then an ICHRA (or a QSEHRA for smaller employers) would work to reimburse all employees within a class for individually owned insurance premiums which include Medicare Parts A, B & C. But, again, the employer could not single out “Medicare-eligible” employees as a group for premium reimbursement. They have to treat all eligible classifications of employees the same.
The institution of the ICHRA, along with its alphabet soup cousins, the EBHRA and QSEHRA, has provided new options to employers beyond traditional group medical programs for sure. But each program has its specific limitations and benefits. We’ve put together a side-by-side comparison to highlight the differences between these programs.
Back to our Medicare reimbursement issue, depending on the employee population, it may make sense to consider an ICHRA. We would be happy to discuss the feasibility of implementing such a program – keeping in mind that, although an ICHRA has opened up new possibilities for reimbursement, it may not be the silver bullet for Medicare-eligible employees.