Editor’s Note: Journalist Philip Moeller is here to provide the answers you need on aging and retirement. His weekly column, “Ask Phil,” aims to help older Americans and their families by answering their health care and financial questions. Phil is the author of the new book, “Get What’s Yours for Medicare,” and co-author of “Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security.” Send your questions to Phil.
With so many people continuing to work once they turn 65, the interaction of employer insurance and Medicare is important but often confusing. It’s at the top of my list of reader questions, with most coming from people who are or soon will be eligible for Medicare. Here’s what they want to know:
Medicare has different rules for employer health insurance plans depending on whether the plans cover more or fewer than 20 employers. We’ll call them “large” and “small” plans here. Even workplaces with fewer than 20 insured employees may qualify as large plans if they’re linked up with a multi-employer group plan. I’ve reviewed these rules carefully with Medicare.
If you work at a small employer plan, your employer is permitted to require you to get Medicare when you turn 65. At that time, Medicare will become your primary health insurer. Your employer also has the option to cancel your workplace plan or retain it as a secondary payer of covered insurance claims. This distinction is important because it can affect the package of Medicare plans you may need, especially whether you need a Medigap supplement plan.
It can be a smart financial move to get Medicare, in addition to employer coverage or in place of it.
If you work at a large employer plan, your employer cannot treat you differently than younger employees. You and, if applicable, your spouse, must continue to be offered employer health insurance. These rules are very clear. If an employer with a large health plan tells you that you must get Medicare at age 65, it is breaking the law. The single exception is for people turning 65 who have end-stage renal disease; they can be required to get Medicare.
Employees with access to large employer-sponsored plans do not have to get Medicare, but they may do so if they wish. Historically, employee plans were so comprehensive and affordable that it seldom made sense for someone to get Medicare. However, rising health care expenses have led many employers to reduce the percentage of the coverage they pay, with many adopting high-deductible plans.
Some high-deductible plans require people to fork over the gross national product of Whatsupistan before their insurance kicks in. For these folks, it can be a smart financial move to get Medicare, either in addition to their employer coverage or in place of it.
Anyone considering this decision should contact their employer plan. They should ask two primary questions:
Some plans disallow employees from re-enrolling if they drop coverage. As for which insurance plan pays first, the distinction between whether a plan is the primary or secondary payer of claims can have enormous consequences for your wallet and your peace of mind.
Where a person has more than one health insurance plan, “coordination of benefits” issues can become complicated and important.
Here’s a rundown of rules, pulled from page 20 of the 2019 edition of “Medicare & You“:
An earlier Ask Phil column provides additional details on employee health coverage for those eligible for Medicare. I’ve also written an explanatory piece on the circumstances under which someone with Medicare can be denied continued participation in a health savings account, including the usually unintentional disqualification that occurs when a person claims Social Security benefits.
The issue of whether an employer can provide financial assistance for an employee’s Medicare expenses is very clear for large employer plans but can be fuzzy for small employer plans.
In the case of large employer plans, the answer is an unequivocal “no.”
Here’s the language from Medicare’s official rules. (To avoid confusion, group health plans, GHP, and large group health plans, LGHP, are Medicare terms that both relate to plans with 20 or more covered employees.)
“An employer or other entity is prohibited from offering Medicare beneficiaries financial or other benefits as incentives not to enroll in or to terminate enrollment in a GHP or LGHP that is or would be primary to Medicare. This prohibition precludes the offering of benefits to Medicare beneficiaries that are alternatives to the employer’s primary plan (e.g., prescription drugs) unless the beneficiary has primary coverage other than Medicare. An example would be primary plan coverage through his/her own or a spouse’s employer. This rule applies even if the payments or benefits are offered to all other individuals who are eligible for coverage under the plan. It is a violation of the Medicare law every time a prohibited offer is made regardless of whether it is oral or in writing. Any entity that violates the prohibition is subject to a civil money penalty of up to $5,000 for each violation.”
If you work at a place with a large employer health plan, it is illegal for your employer to offer you any inducement to get Medicare and drop the employer’s plan. Based on my mailbag, such illegal offers are not uncommon. While you may find the offer attractive, just keep in mind that it’s not allowed.
It is illegal for some employers to offer you any inducement to get Medicare and drop the employer’s plan.
The story with small health plans is not so clear. In some cases, providing employees with financial help for their Medicare expenses is just fine. Given that employees at such firms have to get Medicare anyway, such supportive arrangements are more understandable than for employers with large health plans.
However, employers wishing to provide such subsidy programs have to be careful to make sure their offers are properly constructed. These rules are contained in IRS Notice 2015-17, which is written in language only a lawyer charging high fees could love. Here’s the “simplified” version provided by a Medicare spokesperson:
In order for the small employer with less than 20 employees to reimburse their employees for their Medicare Parts B and D and Medigap premiums, the following conditions must be met:
Readers with questions about these small-plan reimbursement accounts can send them to me, but I recommend doing more research to make sure you’re prepared.
Left: Workers over 65 might be eligible for both an employer health plan and Medicare, and they should carefully consider which coverage they need. Photo by Maskot/Getty Images
Phil Moeller is the author of “Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs” and the co-author of the updated edition of The New York Times bestseller “How to Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security,” with Making Sen$e’s Paul Solman and Larry Kotlikoff. On Twitter @PhilMoeller or via e-mail: medicarephil@gmail.com.
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