Q&A Medicare

October 28, 2008


Can an employer in any way encourage active employees to elect out of employer sponsored health coverage when they are eligible for Medicare?

No. The Medicare Secondary Payer statute (42 U.S.C. Section 1395y(b)(3)(C)) prohibits a group health plan from “taking into account” the Medicare entitlement of an active employees or family members if such employees are still considered in “current employment status.”

Employers are prohibited from discouraging employees from enrolling in their group health plan or from offering “financial or other incentive for an individual entitled to Medicare” not to enroll (or to terminate enrollment) under” a group health plan that would otherwise be a primary plan.

The above prohibition does not apply to employers with less than 20 employees for each working day in at least 20 weeks in either the current or the preceding calendar year, as provided in 42 U.S.C. Section 1395y(b)(1)(A)(ii).

This test must be run at the time the individual receives the services for which Medicare benefits are claimed.

Can an employee elect out of employer coverage on their own and elect Medicare?

There is nothing preventing an employee electing out of employer coverage on his or her on his or her own.

If an employee continues to be covered under an employer provided health coverage, will he or she be penalized when he or she decides to elect Medicare?

No. It is extremely important that an employee enrolls in Medicare during his or her initial enrollment period.  If an employee does not, he or she will be subject to late charges or a premium surcharge. The Part B premium goes up 10 percent for each 12-month period the employee was eligible but does not enroll. The increase in the Part A premium (if the employee has to pay a premium) is 10 percent no matter how late the employee enrolls. The employee may enroll in Part B or premium Part A at any time he or she is covered under another group health plan. However, the employee may also choose to wait and enroll during a special eight-month period. This special period would start with the month the employee or his or her spouse stops working or when he or she is no longer covered by the employer plan, whichever comes first.

Will enrolling in Medicare preserve an employee’s special enrollment rights under Medicare?

No. COBRA coverage is not considered a group health plan based upon current employment under 42 CFR Sections 411.104, 411.175(a)(5), and 411.206(a)(5

Individuals who, in order to retain their COBRA coverage, do not enroll in Medicare when first eligible will not have special enrollment rights under Medicare and may expect to pay more for Medicare when COBRA coverage ends

When is an individual no longer eligible to contribute to a Health Savings Account (HSA)?

Code Section 223(b)(7) reads as follows: “Medicare eligible individuals. The [contribution limit] under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter.

An individual can become entitled to Medicare benefits (under Title XVIII of the Social Security Act) for three reasons: age, disability, or end-stage renal disease (ESRD).

Entitlement to Medicare Part A is automatic for some individuals (i.e., a separate application is not required) because they have already applied for and are receiving Social Security or Railroad Retirement Act benefits.

Other individuals must file an application in order to become entitled to Part A benefits.

Can an HSA be used to reimburse an individual for Medicare premiums?

Yes Under  Code Section  223(d)(2)(C) and IRS Notice 2004-2, Deductible health insurance premiums (other than for a Medicare supplemental policy) for an account holder who is age 65 or older can be paid or reimbursed through an HSA on a tax-free basis, including medical premiums for an employer’s insured or self-insured retiree health coverage

When premiums for Medicare Part A (hospital and inpatient services), Part B (physician and outpatient services), Part C (Medicare HMO and PPO plans), or Part D (prescription drugs) are deducted from Social Security benefit payments received by an account holder who is age 65 or older, he or she can take a tax-free HSA distribution equal to the Medicare premium deduction.

HSAs generally cannot be used by retired account holders for their health insurance premiums prior to age 65-with the exception of COBRA coverage (or premiums paid while receiving unemployment.