Older employees are working longer, and the gap between the age for Medicare eligibility (65) and normal retirement age (soon to be 67) is increasing. As a result, employers are more likely to have Medicare-eligible employees on the payroll and participating in their employee health benefit plans.
If employers have not already fielded questions about Medicare enrollment penalties, whether Medicare or the employer plan is the primary or secondary payer of health claims, and how Medicare eligibility impacts health savings accounts (HSAs), they likely will in the future.
"The key communication issue for most Medicare-eligible employees focuses on how Medicare overlaps with employer-provided health plans," said Gary Kushner, president and CEO of HR and benefits consulting firm Kushner & Company in Portage, Mich. The impact of Medicare eligibility on the ability to make tax-deductible HSA contributions is another key communication point.
When these conversations happen, it is a good idea for HR and benefits professionals to arm themselves with some basic information and readily available resources. Both the Social Security Administration and the U.S. Centers for Medicare & Medicaid Services (CMS) can provide such information as how income from employment may impact Medicare premiums and specific actions Medicare-eligible employees may take when they reach age 65.
Vendors, especially those involved in administering health plans and HSAs, can also provide helpful information for Medicare-eligible employees.
"From the employer's point of view, this is a complicated topic, and they are not legally obligated to address it," said Erin Naumann, senior communications consultant with Segal Benz in New York City. "Employers need to determine how far to go based on company culture and what employees expect from the employer."
Whatever approach employers take, they should be prepared to answer a few pivotal questions that employees are likely to ask—or refer employees to someone who can.
When should I enroll in Medicare?
Generally, individuals can enroll in Medicare within a seven-month window around the time they turn age 65. There are several parts to Medicare, with varying premiums, that employees should keep in mind:
- Part A covers Medicare inpatient care received while in a hospital, a skilled nursing facility and, in limited circumstances, at home, and most people are not charged a monthly premium. This is why many employees who continue working will enroll in Part A but not in the parts of Medicare that charge monthly premiums.
- Part B covers services such as doctor visits and outpatient exams and tests and charges a monthly premium.
- Part C refers to Medicare Advantage plans offered by Medicare-approved insurance companies in lieu of "standard" Medicare. These privately administered plans charge monthly premiums and provide coverage compatible with Medicare but with different out-of-pocket costs and rules.
- Part D covers prescription drug costs; these privately administered plans charge a monthly premium.
Employees may choose not to enroll in Medicare until they stop working. However, employees should be able to provide proof they had employer-sponsored coverage (or coverage through their spouse's employer), including prescription drug coverage at least equivalent to Medicare Part D's, when they eventually stop working and enroll in Medicare, or they will face penalties in the form of higher Medicare premiums.
For instance, "If employees lack employer coverage and don't sign up for Part B when they're first eligible, their monthly premium for Part B may go up 10 percent for each full 12-month period that they delayed enrollment," said Kim Buckey, vice president of client services at Burlington, Mass.-based DirectPath, a benefits education, enrollment and health care transparency firm.
Is Medicare primary or secondary to employer coverage?
If employees are age 65 or older, they should understand whether their employer's coverage is primary or secondary to Medicare:
- If they work for an employer with fewer than 20 employees, they will need to enroll in Medicare to have primary insurance, because health care coverage from employers with fewer than 20 employees pays secondary to Medicare. Failing to enroll will trigger higher-premium penalties.
- If they work for an employer with 20 or more employees, then their employer-sponsored health care coverage pays primary to Medicare. They may choose not to enroll in Medicare while they're still employed.
At firms with 20 or more employees, "emphasize that the employer's plan will generally remain primary as long as the employee is actively employed," Buckey said. "That means employees—and their providers—should continue to submit claims first to the employer's plan and then to Medicare, as appropriate. Remind employees to alert their providers to this secondary coverage."
How does primary or secondary coverage affect HSA contributions?
At organizations where Medicare provides primary coverage, employees at age 65 can no longer contribute to an HSA, because once they enroll in Medicare their coverage is no longer HSA compatible.
At larger organizations where the employer's health plan is the primary coverage, employees enrolled in an HSA-compatible, high-deductible health plan may choose to delay enrolling in Medicare and continue contributing funds to their HSA.
Employees at organizations with 20 or more employees, however, should keep in mind that premium-free Medicare Part A provides secondary coverage of hospital expenses that may not be covered by the employer's plan. If they forgo enrolling in Part A, they should weigh the potentially higher preretirement hospital costs against their ability to increase the size of their HSAs before retiring.
When should I stop making HSA contributions?
Once individuals enroll in Medicare, this coverage will be retroactive up to six months before they signed up, but not beyond their initial month of eligibility (that is, their 65th birthday).
Since HSAs cannot be funded if employees have Medicare, it they are 65 or older they should stop making contributions to their HSA six months before they enroll in Medicare or before they apply for Social Security benefits if they're still working, because those receiving Social Security will automatically be enrolled in both Medicare Part A and Part B. If they intend to sign up for Medicare within six months of turning 65, they should stop making HSA contributions as of their 65th birthday.
After age 65, "If you do not stop HSA contributions at least six months before Medicare enrollment, you may incur a tax penalty," Kushner noted.
"For employees who turn 65 during the plan year, this is important to be aware of during the prior year's open enrollment," Buckey noted, as it may be necessary for them to stop HSA contributions for the coming year.
How can COBRA trip up Medicare enrollment?
Employees older than age 65 who deferred Medicare enrollment typically receive an eight-month special enrollment period, starting the month after employment ends or their group health insurance ends, whichever happens first. Employees should beware that if after ending employment they elect to use COBRA for their insurance for more than eight months (and COBRA coverage is generally available for up to 18 months), then the penalties for missing the special enrollment period and enrolling late are significant and, in the form of higher premiums, continuous.
[SHRM HR Q&A: Should working employees enroll in Medicare?]
Using this information and more details from its vendors, an employer can create a general information template to share during retirement planning workshops or preretirement discussions with employees and their spouses.
The goal of these communication efforts is not to provide exhaustive information on these questions but instead help employees become aware of the issues they may face if they continue working after they become eligible for Medicare.
"As people live longer, there are more people working longer, and these questions will not be going away," noted Kushner.
Joanne Sammer is a New Jersey-based business and financial writer. Stephen Miller, CEBS, contributed to this article.