Once again with feeling, NO, you can’t pay your employee’s Medicare premiums…unless…

I know I’ve written articles on this topic a few times, but it keeps coming up so here’s another article on why you can’t pay Medicare premiums or Medigap/Advantage premiums for your employees over the age of 65.  Only one scenario exists where this is possible; I’ll save it for the end of the article.

Medicare Secondary Payer (MSP) – i.e., when Medicare is not the primary payer – rules dictate how this topic is addressed. MSP rules apply to most all employers, including those in the private sector with more than 20 employees, religious, non-profit, and educational institutions, and federal and state government employers.

Generally, group health plans subject to MSP rules may not “take into account” the Medicare entitlement (either based upon the individual’s age/disability or the age/disability of their spouse/family member) of an individual who is covered under the plan by virtue of the individual’s current employment status. That’s a fancy way of saying “for an employee (spouse/family member) eligible for Medicare, Medicare doesn’t pay first, the group plan does.”

Why are these rules in place?

From a cost perspective, an employer would be ahead to have any Medicare-entitled employee move off the group plan on to Medicare. One, this employee is older and would, actuarily, have higher claims. Two, by having the employee off the group plan, Medicare becomes the primary payer and there is less of a hit to an employer’s experience rating. Win for the employer. Which is why it would behoove them to entice an employee to transfer to Medicare coverage rather than stay on the group plan.

Recognizing that allowing employers to pay Medicare premiums would essentially cost the government more and the employer less, they put rules in place to essentially shut down this practice.

Things employers can’t do with respect to Medicare

Of the things an employer may not “take into account” when it comes to Medicare entitlement:

• • Fail to pay primary benefits of the group plan if a Medicare eligible employee elects to stay on group coverage.
  • Offer coverage that is secondary to Medicare to individuals entitled to Medicare
  • Terminate coverage because the individual has become entitled to Medicare (except as permitted under COBRA).
  • Impose limitations on benefits for a Medicare-entitled individual that do not apply to others enrolled in the plan.
  • Charge the Medicare-entitled individual higher premiums than others enrolled in the plan.
  • Require a Medicare-entitled individual to wait longer for coverage to begin.
  • Provide misleading/incomplete information that could have the effect of inducing a Medicare-entitled individual to reject the employer plan, thereby making Medicare the primary payer.
  • Refuse to enroll an individual for whom Medicare would be secondary payer when enrollment is available to similarly situated individuals for whom Medicare would not be secondary payer.

Further, an employer is prohibited against offering Medicare-entitled individual’s certain incentives to leave the group plan, such as:

Rewards/Incentives

• • Offering Medicare beneficiaries financial rewards or other benefits as incentives to not enroll in, or to terminate enrollment in, a group health plan that is providing, or would provide primary coverage to Medicare.
    • Example: An employer offering to pay for Medicare beneficiaries’ Medicare supplemental coverage if they waive employer-sponsored coverage.

Cash-in-lieu of Benefits Arrangement

• • Offering Medicare-eligible or entitled employees waiver credit/cash to opt-out of benefits (even if the opt-out credit is provided to all employees that waive coverage) may violate the MSP rule’s prohibition against offering financial incentive not to enroll in a group health plan primary to Medicare.
  • It may also violate the state’s age-discrimination laws to try to write a small group health plan which disallows Medicare-eligible or entitled employees participation in the plan.

Washington state age discrimination law says employees over the age of 40 require an equal opportunity for employment, treatment, promotions, raises, BENEFITS, etc. as younger employees do. 

The Age Discrimination in Employment Act of 1967 (ADEA Federal law) protects certain applicants and employees 40 years of age and older from discrimination on the basis of age in hiring, promotion, discharge, compensation, or terms, conditions or PRIVILEGES OF EMPLOYMENT (i.e. benefits).

Bottom line: Group health plans must provide employees/spouses age 65+ with the same benefits under the same conditions provided to employees/spouses under age 65.  This requirement applies regardless of whether the individual or spouse 65+ is entitled to Medicare. 

Ah, but what about small employers, you are asking. Gina, above you said MSP doesn’t apply to employers with under 20 employees. It’s true, small employers aren’t subject to MSP rules. But small employers who try to write a small group plan that excludes Medicare aged employees will quickly run into those pesky federal and state anti-age discrimination laws. It’s a no go.

Does an employer have any options?

As promised in the opening of this article, an ICHRA (Individual Coverage Health Reimbursement Arrangement) plan is the only circumstance where employers can pay the Medicare premiums and/or Medigap/Advantage premiums for employees over the age of 65. But even here, the rules are extremely limited.

Employers who do have a group health plan in place may pay for Medicare premiums under MSP rules only if:

• • The age 65+ employee does not qualify for your group medical plan (e.g. works part-time)
  • You have 10 or more employees in the ICHRA class. Medicare eligible/enrolled is NOT a class of employee

What about employers who don’t have a group plan? There are strict rules that apply to them as well. They must:

• • Offer ICHRA to all employees if there are 10 or fewer employees
  • Have at least 10 or more employees in the ICHRA class if employer had fewer than 100 employees
  • Have (for an employer with 100 to 200 employees) 10% of the total number of employees in the ICHRA class
  • Have at least 20 employees in the ICHRA class for an employer with 200+ employees
  • Define a class of employees eligible for the ICHRA. Note: Medicare eligible/enrolled cannot be considered a class of employee

In both of these scenarios, most owners cannot participate due to IRS rules, only C Corp owners can participate in an ICHRA.

So, for whom can you offer Medicare premium payment through an ICHRA? What classes are eligible?

• • Full-time employees, if part-time employees are offered a traditional health plan
  • Part-time employees, if full-time employees are offered a traditional health plan
  • Salaried employees
  • Non-salaried employees
  • Employees whose primary site of employment is in the same rating area, unless the rating area is a state or a combination of two or more entire states
  • A class of employees created by combining at least one of the preceding classes with any other class

I know, it’s a long article and it’s probably still clear as mud. But it will serve a purpose. I plan on emailing the link to this article to the 4,634 people who will ask me this month: “Can I pay Medicare premiums for my employees?” As you can see, the circumstances where you can do it are so narrow and it’s hard to meet the criteria.  “No” will be the definitive answer for 99% of you, sorry.