updated 5/18/2011 and 11/17/2011
Reaching age 65 is an important turning point for many Baby Boomers—whether they are retiring from work or not. If they remain employed, however, Baby Boomers have the added complexity of factoring Medicare into their employer-provided health care decisions.
In the past decade, the number of Americans working past the Medicare-eligibility age (currenlty age 65) climbed 52 percent, according to U.S. Bureau of Labor Statistics data. More companies are taking steps to coordinate their health care coverage options for employees who are eligible for Medicare.
“One of employees' first steps is confirming what their employer will provide once they reach age 65,” said Adrienne Muralidharan, senior product specialist for Allsup Medicare Advisor, a provider of Medicare plan selection services.
The number of large companies offering retiree health benefits declined from 40 percent in 1995 to 28 percent in 2010, according to the Kaiser Family Foundation. For some, employer coverage is the primary payer of benefits, with Medicare paying costs not covered by the employer plan. For other employees, the reverse is true.
“It can be confusing for employees to determine how their employer coverage coordinates with Medicare,” Muralidharan pointed out. “When you add in decisions about spouse and dependent benefits, it can become even more complicated.”
Below are key questions employees turning 65 should consider when deciding on their health care coverage needs.
Do you still work and have health care coverage through your employer?
Active employees who continue to work past age 65 cannot be dropped from their employer's group health plan without violating the federal Age Discrimination in Employment Act (ADEA). In addition, the Medicare secondary payer rules prohibit an employer from reducing health benefits to current employees as a result of their eligibility for Medicare based on age (except in the case of certain small employers). Thus, while coverge for current employees over age 65 may be coordinated with Medicare, the employer must offer health benefits to those employees that are equal to the benefits that it offers to other similarly situated employees (this prohibition does not apply to retirees, as discussed below).
As regards coordinating coverage under the group plan with Medicare for employees age 65 and older, employer size is a factor:
• If an employer has more than 20 employees, in most instances the group health plan is the primary payer and Medicare acts as the secondary payer. Traditional Medicare has two main parts: Part A is hospital coverage, and Part B is medical services. Generally, everyone should take Part A when they become eligible since it is free.
Employees have the option of enrolling and paying the monthly premiums for Part B coverage. If they don’t enroll in Medicare Part B, they need to get a deferral from Medicare so they are not subject to penalties when they enroll in the future.
• If an employer has fewer than 20 employees, Medicare becomes the primary payer and the employer’s plan is the secondary payer. In this instance, it’s essential that employees turning 65 enroll in Medicare Parts A and B. If they don’t enroll, then generally they will have to pay from their own pocket anything that Medicare would have covered.
“Employees should get in writing details about their employer-provided coverage,” Muralidharan advised. “This will help them to decide how to handle their Medicare choices.” (To learn more, see "Medicare and Other Health Benefits: Your Guide to Who Pays First," from the federal Centers for Medicare and Medicaid Services.)
Does your spouse work and have employer-provided health care coverage?
Employees might be able to move to their spouse’s health care plan if it would provide them with equal or better coverage than Medicare. Again, they should determine how the plan would coordinate with Medicare (for example, as primary or secondary payer).
Are you retired, and do you have retiree health benefits through your former employer?
If employees have coverage as good as or better than Medicare under their retiree benefits, they might be able to defer Medicare Part B—if their retiree health care plan allows them to do so. However, some retiree plans stipulate that Medicare is the primary payer and the retiree plan is the secondary payer. Therefore, they need to understand how much coverage is provided under their retiree health plan to determine if they need additional Medicare coverage.
Retiree Health Plans and Medicare
An Equal Employment Opportunity Commission (EEOC) final rule issued on Dec. 26, 2007, allows retiree health plans to be coordinated with Medicare for Medicare-eligible retirees. Employers may create, adopt or maintain a wide range of retiree health plan designs, as well as reduce or terminate benefits for Medicare-eligible retirees without running afoul of the federal Age Discrimination in Employment Act (ADEA). The rule also applies to retiree health plans that coordinate with a state program that is comparable to Medicare.
Employers contemplating retiree health plan designs that are coordinated with Medicare have various options, including:
• A Medicare bridge plan, which provides retirees health care coverage from the time they retire until they become eligible for Medicare.
• A Medicare wrap-around plan, which provides retirees with additional coverage for out-of-pocket expenses, including the cost of co-insurance and deductibles.
• A Medicare carve-out plan, which generally reduces the benefits available under the insurance contract by the amount payable by Medicare.
Source: Milliman, "Coordinating Retiree Health Benefits with Medicare."
Are you eligible for veteran health care benefits?
Veteran health care benefits, in general, are covered when provided at U.S. Department of Veterans Affairs (VA) facilities or for services authorized by the VA. Depending on the level of VA benefits they receive, employees 65 and older might be covered adequately and might not need Medicare coverage. But some people find that Medicare offers more flexibility and choose to use a Medicare plan. VA benefits and Medicare do not coordinate.
Do other family members rely on your health care plan for coverage?
If employees are turning 65 and their spouse or children are covered under the employer’s health care plan, they need to consider how their coverage might change if they choose to switch to Medicare. For example, will they be eligible for COBRA or need to secure private coverage? This is becoming increasingly important as children up to age 26 can remain on their parent’s health care plan. “Before changing any coverage for themselves, employees will want to make sure they have secured coverage for anyone else included on their policy,” Muralidharan said.
Choosing Medicare Coverage
Whether seeking a deferral or enrolling in Medicare, it is important that employees understand options provided under the alphabet of Medicare programs. In addition to Part A-hospital and Part B-medical, discussed above, they will confront decisions regarding optional Part C-Medicare Advantage plans (which combine government-paid Medicare benefits with supplemental insurance in a single policy from a private insurer) and Part D-prescription drug plans, as well as private "Medigap" plans (which pay for services that Medicare doesn't cover).
Again, it’s generally a good idea for employees at age 65 to enroll in Part A, as it’s available at no cost. Enrollment in the other parts depends on several factors, including those discussed above.
Employees should evaluate their options. For example, most people can choose from dozens of competing Medicare Advantage, prescription drug and Medigap plans.
“It’s not surprising many people find this is a confusing process,” Muralidharan said, “especially if they are trying to coordinate Medicare with their other options.”
Tools and Services to Help HR Guide Employees
My Medicare Advocate is a service that lets employers offer their retirees licensed call center advocates who provide personalized service, along with a Web portal and written materials including brochures and enrollment guides, to help retirees evaluate the most appropriate Medicare coverage for their individual situations.
“With more than 2,200 managed care plans and 1,800 prescription drug plans available to retirees, it’s no surprise they are overwhelmed,” said Jeff Clay, chief operating officer of My Medicare Advocate, part of ACS, a Xerox company. “This solution takes the pressure off employers while making it simpler for retirees to chart the Medicare decision process.”
Extend Health provides resources and advice that help employees find high-quality health care coverage at the least expense. The company offers a private Medicare exchange to help retirees find Medicare Advantage, Medigap and Medicare Part D plans all in one place, making it easier to compare costs.
"Instead of being limited to one or two group plans as options, they can compare many plans from different carriers and choose the one that best fits their needs and budget," said Extend Health CEO Bryce Williams. "HR managers can lead the way by ensuring that their early retirees' transition from passive employees on the company health plan to empowered individual health insurance consumers is a smooth one."
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Build a Bridge to Health Exchanges for Early Retirees, SHRM Online Benefits Discipline, February 2011
Still Worthwhile? Weighing Retiree Drug Benefits Without a Subsidy Deduction, SHRM Online Benefits Discipline, July 2010
Retiree Health: Many Trim Their Sails, But Stay the Course, SHRM Online Benefits Discipline, April 2007
Medicare FAQ: Should I sign up for Medicare Part A and B if I'm still working? Medicare.gov
Medicare and Other Health Benefits: Your Guide to Who Pays First, Medicare.gov
Medicare Fact Sheets, Kaiser Family Foundation
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page