COBRA & Medicare Entitlement (enrollment) – Are You Making This Mistake?

When an employee enrolls in Medicare and subsequently voluntarily drops the group health plan, their spouse does not become a qualified beneficiary eligible for COBRA coverage.

Medicare entitlement (i.e. eligible & enrolled) is only a COBRA qualifying event (QE) if it causes an employee to lose group health coverage (i.e. under 20 lives, or retiree plan). Otherwise, due to Medicare Secondary Payer (MSP) rules, Medicare entitlement is not a COBRA QE for the employee.

Likewise, if the employee voluntarily drops group coverage because they enroll on Medicare and as a result, the dependents (e.g. spouse) then lose employer coverage, this also is not a COBRA QE for the dependents. Medicare entitlement did not “cause” the loss of eligibility, rather the employee deciding to drop the employer’s group coverage did.

When an employee drops their employer’s plan because they enrolled in Medicare, the spouse should not be offered COBRA coverage, but it happens all the time.

Why does it matter?

Although this is something often incorrectly administered, it potentially violates the MSP rules. It could be viewed as the employer providing an incentive for the employee to drop the group plan in favor of Medicare (knowing the spouse will have continuation coverage).

The penalty for violating the rules:

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.

Employees who are turning 65 may also need additional education, to allow them to make an informed decision when deciding whether to enroll on Medicare instead of their employer’s plan.

If you have questions about the above, or need help with another employee benefits administration question, please contact us! We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Turning 65 Does Not Prevent HSA Eligibility

Medicare entitlement (entitlement=eligible & enroll) is no longer automatic for everyone when they turn 65, rather most will need to sign up to get Medicare Part A and Part B.  Medicare is only automatic for individuals who:

  • Are getting benefits from Social Security or the Railroad Retirement Board (RRB) at least 4 months before they turn 65
  • Are under age 65 and have disability benefits from Social Security or RRB for 24 months
  • Have ALS (also called Lou Gehrig’s Disease)

Therefore turning 65 and gaining eligibility for Medicare in and of itself, does not disqualify an employee from continuing to receive employer contributions or making their own contributions to an HSA. Only if one voluntarily enrolls in any part of Medicare would they then be disqualified. 

Employees wanting to work a few more years and delay retirement can continue to reap the triple tax advantage benefit of an HSA if they are otherwise an eligible individual.  Keep in mind however if an employee delays their enrollment in Medicare and continues to work beyond age 65, once the individual’s employment sponsored coverage ends, they have an eight-month special enrollment period to sign up for Medicare Part A. The first month of Medicare entitlement may be retroactive to the month they turned 65, or up to 6 months prior to enrollment, whichever is less. Therefore, an individual may become ineligible for an HSA & have to stop HSA contributions for up to 6 months before they apply for Medicare Part A benefits to ensure they do not over contribute to their HSA.

If you have a question on this or are stumped on another employee benefits compliance question, send us an email today! We’re here to explain complex compliance issues in layman’s terms.

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on their website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

October 15th Deadline Drawing Near – Medicare Part D Notices

Oct 15

All employers that offer prescription drug coverage to Medicare Part D eligible individuals–which may include active employees, disabled employees, COBRA participants, retirees, and their covered spouses and dependents who have coverage under Medicare Part A or B—are required to provide a Part D Notice of Creditable Coverage (the “Notice”) to Part D eligible individuals.** The purpose for the Notice is to let participants know whether the prescription coverage being offered is creditable. 

Creditable = prescription drug coverage that on average, pays out at least as much as the standard coverage available through a Medicare prescription drug plan.

**As a practical matter, employers do not know which employees, spouses or dependents are enrolled in Medicare Part A or Part B, nor will they know which individuals are considering enrollment in the employer’s plan. Therefore, employers generally provide the Notice to all employees. 

Why does it matter?

Disclosure of whether their prescription drug coverage is creditable allows individuals to make informed decisions about whether to remain in their current prescription drug plan or enroll in Medicare Part D during the Part D annual enrollment period.

Individuals who do not enroll in Medicare Part D during their initial enrollment period (IEP), and who subsequently go at least 63 consecutive days without creditable coverage (e.g., because they dropped their creditable coverage or have non-creditable coverage) generally will pay higher premiums if they enroll in a Medicare drug plan at a later date.

When must the notice be provided?

At a minimum, the Notice must be provided to individuals at the following times:

  1. Prior to the Medicare Part D annual election period—beginning Oct. 15 through Dec. 7 of each year;
  2. Prior to an individual’s IEP for Part D;
  3. Prior to the effective date of coverage for any Medicare-eligible individual who joins the plan;
  4. Whenever prescription drug coverage ends or changes so that it is no longer creditable or becomes creditable; and
  5. Upon a beneficiary’s request.

If the Notice is provided to all plan participants annually, before Oct. 15 of each year, items (1) and (2) above will be satisfied.

“Prior to,” as used above, means the individual must have been provided with the Notice within the past 12 months.

Note:  One way to ensure this requirement is met is to provide the Notice annually at open enrollment to all participants and in plan enrollment materials provided to new hires.

Although there are no specific penalties associated with this Notice requirement, failing to provide the Notice may be detrimental to employees and cause employee relations issues.

Resources:

Model Notice Letters

COBRA extensions & Medicare

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As mentioned in a previous post Common Medicare entitlement (enrollment) COBRA mistake…are you making it too?, Medicare entitlement (i.e. eligible & enrolled) is only a COBRA qualifying event (QE) if it causes an employee to lose group health coverage (i.e. under 20 lives, or retiree plan). So due to Medicare Secondary Payer (MSP) rules, Medicare entitlement is not a COBRA QE for the employee, nor is it a QE for the spouse (or dependent) who loses the employee’s group health coverage when the employee voluntarily drops the employer’s plan and enrolls in Medicare.

However, Medicare entitlement does not have to cause the loss of coverage for the spouse or dependents when it comes to being eligible for a COBRA extension. There is a special rule, which extends the maximum COBRA coverage period for spouses and children, (but not for employees) to 36 months of COBRA coverage vs. the typical 18 months when the qualifying event (e.g. retirement) occurs after the employee becomes entitled to Medicare but remained on their employer’s group plan.

In those cases, the spouse and dependents are entitled to the longer of (i) 18 months from the date of the qualifying event (retirement); or (ii) 36 months from the date of Medicare entitlement.

For example: Jack works for Up the Hill, Inc. He and his wife Jill are covered by a group health plan which is subject to COBRA. Jack becomes entitled (enrolled) to Medicare on May 1st. Jack and Jill also remain covered under the group health plan offered by Up the Hill, Inc. On January 1st (8 months later), Jack retires and therefore Jack and Jill both experience a qualifying event (termination of employment).

Jill would be eligible for 28 months of COBRA coverage. (36 months minus 8 months)

On the other hand, if Jack waits longer than 18 months to retire after he enrolls in Medicare, Jill will just get the regular 18 months of COBRA.

Either way, Jack is only entitled to 18 months of COBRA upon retirement.

COBRA regulations appear simple on the surface but the rules are rather complex.  Best practice is for employers to work with a competent third party COBRA administrator who can help them comply with the challenging requirements.

Common Medicare entitlement (enrollment) COBRA mistake…are you making it too?

 

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Medicare entitlement (i.e. eligible & enrolled) is only a COBRA qualifying event (QE) if it causes an employee to lose group health coverage (i.e. under 20 lives, or retiree plan). Otherwise, due to Medicare Secondary Payer (MSP) rules, Medicare entitlement is not a COBRA QE for the employee.

Likewise if the employee voluntarily drops group coverage because they enroll on Medicare and as a result, the dependents (e.g. spouse) then lose employer coverage, this also is not a COBRA QE for the dependents. Medicare entitlement didn’t “cause” the loss of eligibility, rather the employee deciding to drop the employer’s group coverage did.

In other words, when an employee drops their employer’s plan because they enrolled in Medicare, the spouse should not be offered COBRA coverage, but it happens all the time.

Although this is something often incorrectly administered, it is a potential MSP issue because it could be viewed as an incentive for the employee to drop the group plan in favor of Medicare (knowing the spouse will have continuation coverage).

Employees who are turning 65 may also need additional education, to allow them to make an informed decision when deciding whether to enroll on Medicare in lieu of their employer’s plan.