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Employer Challenges with Medicare-Eligible Employees

An increasing number of employers are facing Medicare-related health insurance issues, and these issues are expected to only become more prevalent in the coming years. Here is an overview of the issues from the underlying causes to how employers might navigate them.

Medicare-Related Health Insurance Challenges Are Increasing

Two trends are contributing to the overall increase in Medicare-related health insurance challenges for employers.

First, older Americans are simply working longer.  While this isn’t a new trend, the Bureau of Labor Statistics projects that this trend will continue, with about one-third of seniors age 65 to 74 expected to be working in 2029. Even among seniors age 75 and older, the BLS expects more than 10 percent of the demographic to be working at the end of the decade.

Second, the Social Security full retirement age can be higher than the eligibility age for Medicare.  While a person can retire and begin receiving reduced Social Security benefits at age 62, the earliest full retirement age is 66 and for people born after 1960, it is 67.  In addition, benefits increase if an employee works beyond their full retirement age, maxing out at age 70.  This means that there could be a two-year gap, where an employee becomes eligible for Medicare at age 65, but will not be fully eligible for Social Security until age 67. Many people may choose to work beyond their Medicare eligibility birthdate as a result.

The result is that Medicare-related health insurance challenges are not something that employers can afford to ignore. Many employers are already facing with these issues, and those that aren’t will probably face them soon.

Medicare is a Four-Part Health Insurance Plan for Seniors

Medicare is, of course, the nationally subsidized health insurance plan that is available to those 65 and older.  The program consists of four main parts:

  • Part A: Generally, covers stays in hospitals, skilled nursing facilities and certain at-home care. Most enrollees aren’t charged a premium.
  • Part B: This usually covers doctor’s visits, outpatient exams, and tests. Premiums are usually charged.
  • Part C: Medicare Advantage plans are offered as alternatives to “standard” Medicare plans, and they may have different rules and out-of-pocket expenses. These plans are offered by approved private insurers, which charge premiums.
  • Part D: This part covers prescription drugs. These plans are offered by private insurers, which charge premiums.

Because Medicare Part A is premium-free, many employees who have access to employer-sponsored plans may choose to enroll in this part of Medicare alone.  Instead, they may rely on their employer-sponsored plan to cover office visits, outpatient services, and diagnostic testing.

Medicare Eligibility Begins at Age 65

A person becomes eligible for Medicare at age 65 and can enroll during the three months before the month in which they turn 65, the month in which they turn 65 or the three months after they turn 65.  When a person enrolls after their 65th birthday, coverage may apply retroactively for up to six months.

A person who does not enroll (or prove equivalent coverage) when first eligible for Medicare may have to pay a penalty if they enroll later.

Working May Impact an Employee’s Decision to Enroll in Medicare

Working part- or full-time does not affect Medicare eligibility, but it may impact an employee’s decision whether to enroll in Medicare.  The decision to enroll depends on an employer’s size and an employee’s coverage needs.

An eligible person working for an employer with fewer than 20 employees is required to enroll in Medicare coverage or face higher premiums later. An eligible person working for an employer with 20 or more employees can forgo Medicare coverage, as long as they have equivalent or better coverage through their employer or through their spouse’s employer.

Whether an eligible employee chooses to enroll in Medicare is a personal decision that depends on personal health, family coverage needs, employer-sponsored plan features, income level, and other factors. Many employees may elect to, at least, enroll in the free Medicare Part A coverage.  However, some will delay Medicare enrollment altogether.

Medicare Can Overlap with Employer-Provided Health Insurance

When an employee is both enrolled in Medicare and covered by their employer’s plan, one will provide primary coverage and the other will be secondary. Whether Medicare is primary or secondary depends upon the size of the employer.

When an employer has fewer than 20 employees, Medicare pays first and the employer’s plan pays second.  When an employer has 20 or more employees, the employer’s plan pays first and Medicare pays second.

Medicare Isn’t Compatible with Health Savings Accounts

Employees who are covered by a high-deductible health plan (HDHP) can contribute to a health savings account (HSA).  However, an employee may not contribute to an HSA, if they are enrolled in Medicare.  As a result, an employee’s decision whether to enroll in Medicare may depend upon the value they attach to the ability to make future contributions to an HSA.

Navigating Medicare Issues and Self-Funded Plans

Whether a Medicare-eligible employee enrolls in Medicare or stays in their employer’s health plan is a difficult decision for an employee.  However, it is also a challenge for employers that want to mitigate increasing healthcare costs by adopting a self-funded health plan.  Whether a self-funded health plan option is viable for a particular employer may depend upon the mix of an employer’s employees.  There is not a one-size-fits-all solution. Instead, each situation must be taken on a case-by-case basis and should be navigated with expert guidance.

RMC can provide the expert guidance that an employer needs with a consultative risk management approach.  RMC’s Medicare consulting services provides businesses with a clear path to a successful self-funded health plan transition.

To speak with a knowledgeable consultant at RMC, contact us today. One of our representatives will be happy to assist you and your business.