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Medicare & Over-65 Employees

Medicare & Over-65 Employees
Can Over-65 Employees Decline the Group Plan For Medicare Coverage?

We receive inquiries about whether or not it is permissible to give older workers the option to decline the group health plan. Provided that certain conditions are met, employers may offer older workers the option to decline the group health plan.

"Medicare beneficiaries are free to reject employer plan coverage, in which case they retain Medicare as their primary coverage. When Medicare is primary payer, employers cannot offer such employees or their spouse’s secondary coverage for items and services covered by Medicare. Employers may not sponsor or contribute to individual Medigap or Medicare supplement policies for beneficiaries who have or whose spouse has current employment status.” Excerpt from CMS Medicare Secondary Payer Manual, Chapter 1, (Rev 34, 09-07-05).

In the August 31, 1995 CMS final regulations (§411.108(a)(9)), CMS prohibits a group health plan from providing misleading or incomplete information that would have the effect of inducing a Medicare entitled individual to reject the employer plan. An example of misleading information would be informing a Medicare beneficiary of the right to accept or reject the employer plan but failing to inform the individual that, if he or she rejects the plan, the plan will not be permitted to provide or pay for secondary benefits.

If an employer offers a Medicare beneficiary an incentive, financial or otherwise, not to enroll in the plan, the group health plan is subject to a civil money penalty of up to $5,000 for each violation. In addition, an excise tax could be applied that would equal 25% of the plan's expenses incurred during the calendar year.

Key Points
For active employees , if a group health plan provides the option to Medicare eligible individuals to decline coverage, keep these points in mind.

  • Employers (with 20 or more employees) may not offer any incentives, financial or otherwise, to discourage Medicare beneficiaries from enrolling in the group health plan.
  • Employers (with 20 or more employees) may not offer any incentives, financial or otherwise, to encourage Medicare beneficiaries to terminate enrollment in a group health plan.
  • Employers should not contribute to individual Medigap or Medicare supplement policies for Medicare beneficiaries, whether the employee or the spouse.
  • The plan document should explain that the group health plan will not provide or pay secondary benefits to Medicare in the event that the individual declines the group health plan.
  • Verbal communications to Medicare eligible individuals should explain that the group health plan will not provide or pay secondary benefits to Medicare in the event that the individual declines the group health plan.

If an employer/plan sponsor abides by the above key points, the employer/plan sponsor may raise the issue of declining the group health plan with an employee. In most cases, the only employees who will consider this as an option are employees who have a major stake in the success of the company and are willing to take a reduction in benefits. However, with increasing cost sharing, other employees with a lower stake in the organization may decide that the cost of the employer group health plan is too high.

Medicare-covered employees who reject the employer group health plan and take Medicare as their primary payer are likely candidates to appear on a CMS Data Match recovery request. Under the Data Match program, CMS sends recovery letters to employer/plan sponsors that CMS believes should have paid primary, instead of Medicare. An employee who receives a W-2 Form and receives Medicare benefits is a likely suspect for review. So, employers who have employees who voluntarily decline the group health plan, your need to be watching for a Data Match form.

While the Medicare Secondary Payer rules do not require a written election from individuals who choose Medicare as the primary payer, it is a good idea to have something in writing showing that the employee voluntarily declined the group health plan.

Basic Medicare Secondary Payer Rules for Older Workers
65 and Over Employees - A group health plan of an employer with at least 20 employees may not take into account the age-based Medicare entitlement of currently employed individuals age 65 or older and must provide coverage to such individuals on the same conditions as to younger employees. Medicare Secondary Payer (MSP) final regulations §411.102(b)(2).

Spouses Age 65 and Older - Spouses age 65 and older of employees of any age must be covered by the group health plan under the same conditions as spouses under age 65. MSP Final Regulations §411.102(b)(1).

Incentive Prohibition - An employer is prohibited from offering Medicare beneficiaries financial or other benefits as incentives not to enroll in, or to terminate enrollment in, a group health plan that is, or would be, primary to Medicare. MSP final regulations §411.103(a).

ADEA Considerations
The Age Discrimination in Employment Act of 1967 (ADEA), as amended, prohibits discrimination by an employer against employees age 40 or older in hiring and firing, in compensation, and in the terms, conditions, and privileges of employment. Employers cannot reduce or eliminate coverage for employees earlier than age 65 (Medicare entitlement age) and avoid the MSP rules. For example, one Plan recently suggested that the plan terminate coverage for all spouses of employees once they reach age 60. This would be a problem under ADEA.

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