This blog is Part I of a three-part series.
Part 1: What is Medicare anyway?
Recent studies have shown that your employees love working for you so much that they intend to continue to do so well into their golden years. Well, sort of. According to the Bureau of Labor Statistics, which keeps track of this sort of thing, the share of the American workforce aged 65 and older has been steadily increasing for years. Those between the ages of 65 and 74 are projected to represent a full 30.2% of the workforce in 2026 (up from 26.8% in 2016 and 17.5% in 1996), and the share of those aged 75 and older has leapt from 4.6% in 1996 to 8.4% in 2016 to a projected 10.8% for 2016. Speculation abounds as to why more and more people are preferring the grind to gardening and golf, but the fact is, they are, and, as their employer, it behooves you to ensure: (1) that your silver-haired workforce stays healthy, and (2) that you’re using the best cost-containment measures to continue to allow your company to do just that.
In this series, we’re going to get into the weeds and discuss all the various and sundry options available to employers to coordinate their benefit plans with Medicare – ICHRA’s, QSEHRA’s, Medicare MSA’s, and a few other acronyms we’ve made up just to make sure you’re paying attention. So, for Part I, it might not be a bad idea to ask: “What do we mean we talk about ‘Medicare’?”.
“Medicare” is a federal health insurance program for people aged 65 and older, certain younger people with disabilities, and people with permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD. It consists of four parts: A, B, C, and D. Medicare Part A covers hospital, skilled nursing, nursing home, hospice, and home health services care, Part B covers medically necessary and preventive services, and Part C (also known as “Medicare Advantage”) is essentially both Parts A and B, but it is offered by a private company that contracts with Medicare to provide the beneficiary with the Part A and B benefits. So far, so good? Really, it’s not as complicated as everybody says it is.
Medicare Part D is a program that helps pay for prescription drugs for people with Medicare who join a plan that includes Medicare prescription drug coverage. Such a plan would either be a Medicare Prescription Drug Plan or a Medicare Advantage Plan that includes drug coverage – both of which are offered by private companies approved by Medicare.
Roughly one third of Medicare enrollees opt for the Advantage Plan, which includes Parts A and B coverage, typically with Part D prescription drug coverage, along with extras like dental and vision. The remaining two thirds pair basic Medicare with a stand-alone Part D plan, or add a Medicare supplemental policy — a.k.a., “Medigap” — which covers Medicare costs such as copayments and co-insurance that would otherwise be paid out-of-pocket.
So, as an employer, it would seem that there’s nothing to worry about – if Medicare is going to cover my over-age-65 employees, I don’t need to worry about providing them with health insurance at all, right?
Not so fast. If you employ fewer than 20 individuals, then you don’t necessarily have to offer health insurance to Medicare-eligible employees, and if you do, Medicare will be the “primary payer” – it will pay your covered employees’ claims before your group health plan will. However, if you employ 20 or more individuals, not only do you have to offer your over-age-65 employees the same health benefits offered to younger employees, you are also generally prohibited from even offering incentives for employees to enroll in Medicare instead of your group health plan.
Here’s where it gets a little delicate, especially as regards benefits planning. Three months before an individual’s 65th birthday month, a seven-month window opens, within which the individual may sign up for Medicare penalty-free. However, employees do not necessarily have to enroll in Medicare upon reaching age 65, nor do they necessarily have to enroll in all four “parts” at the same time. Basically, the only people who will want to delay enrolling in Medicare Part A will be those employees who don’t have at least a 10-year work history that would qualify them for premium-free Part A coverage, or those employees who contribute to a Health Savings Account (“HSA”), because signing up for any part of Medicare disqualifies an individual from making any further HSA contributions. And the only people who will want to delay enrolling in Part B will be those who have health insurance from their (or their spouse’s) current employer. Otherwise, the “lifetime late enrollment penalty” (which increases the longer you wait to enroll) makes late Medicare enrollment ill-advised.
If all this sounds like it would make employer-provided benefits planning difficult, it’s because it does. So, what is an employer to do? To make a long story short, the considerations applicable to a company with 1 to 19 employees are different from those applicable to a company with 20 to 49 employees, which are different from those applicable to a company with over 50 employees (i.e. “Applicable Large Employers” subject to the Affordable Care Act). We will discuss those considerations in parts II, and III.
 Of course, if you do offer a Section 125 “Cafeteria Plan”, you still have to make sure that you’re meeting the nondiscrimination tests, namely: the “eligibility test” (cannot discriminate in favor of highly compensated individuals as to plan eligibility); the “benefits and contributions test” (cannot discriminate in favor of highly compensated participants as to benefits and contributions), and the “key employee concentration test” (cannot provide more than 25% of nontaxable benefits to “key employees”). And, if you’re self-insured, you also have to comply with the Section 105 nondiscrimination rules, meaning that you still can’t discriminate in favor of highly compensated individuals. Okay, maybe this is a bit tricky…