Most people know that Medicare provides health insurance for those that are at least age 65 and/or those that have a qualifying disability. The program is administered by the Centers for Medicare & Medicaid Services (CMS), which is part of the Department of Health and Human Services (HHS). Navigating through the employer requirements and the limits of employer involvement is a bit trickier.
Understanding The Basics
Medicare is comprised of several parts. Part A is the hospital insurance program, that covers hospital care, nursing home care, hospice, and home health services. The supplemental insurance program that covers physician services and other health care expenses makes up Part B. Part C is the “Medicare Advantage” program that offers private company contracts to provide supplemental Part A and Part B benefits. Finally, Part D relates to the prescription drug benefits.
The two primary obligations for an employer to worry about regarding Medicare are the requirement to provide the Medicare Part D disclosure notice of ‘creditability’ (or ‘non-creditability’) and ongoing compliance with the Medicare Secondary Payer (MSP) Requirements.
Medicare Part D Disclosure Notice of Creditability
All group health plans that include a prescription drug benefit within the overall benefit offering, including those offered pursuant to the fringe benefit requirements of the McNamara-O’Hara Service Contract Act (SCA) and the Davis-Bacon Act (DBA), must provide a Medicare Part D creditable coverage disclosure to CMS and also to all Part-D eligible individuals that are enrolled in or seeking to enroll into the prescription drug coverage.
As mentioned above, Medicare Part D coverage is the voluntary prescription drug benefit program. The Part D notification requirement is to provide information as to whether the coverage is considered ‘creditable’. For a prescription drug benefit to be ‘creditable’, the employer-provided offering must cover at least as much as the standard coverage available through the Medicare prescription drug program. This ‘creditability’ notice must be provided to eligible plan participants at specific times, including on an annual basis prior to October 15th every year (prior to the annual election period for the Part D program).
Please note that even though the notice requirement is intended only for Medicare Part D eligible employees, many employers find it easier to provide the notice to all employees rather than having to identify those that are Part D eligible.
Rules for Medicare Secondary Payer
Medicare Secondary Payer (MSP) provisions generally require that Medicare be the secondary payer to certain types of insurance or health plans, including group health plans offered through an employer with at least 20 total employees. To further ensure that Medicare acts as secondary payer, the MSP Rules prohibit an employer from ‘taking into account’ the Medicare entitlement of a current active employee or a spouse/dependent when offering employee benefits.
‘Taking into account’ means that an employer cannot treat eligible participants differently from other active employees and must offer the same benefits under the same conditions as those that are under and those that are over age 65.
Some examples of prohibited acts include, but are not limited to, a plan being administered not to pay primary to Medicare coverage when an individual is covered by both Medicare and an employer group health plan; a plan terminating coverage to participants as they become eligible; or, a plan sponsor offering a ‘financial or other incentive’ not to enroll (or terminate enrollment) under the employer sponsored group health plan that would otherwise be primary.
Bottom line is that an employer cannot take steps to encourage Medicare-eligible active employees to waive coverage or dis-enroll in coverage under the employer group health plan so that Medicare would subsequently be the primary payer. The MSP rules do not apply to former employees and their family members.
CMS provides specific guidance regarding the MSP rules for employers subject to the SCA and DBA. Specifically, the guidance clarifies that the MSP Rules prohibit employers from encouraging or offering incentives to individuals who are eligible for, or already enrolled in, Medicare to elect enrollment instead of enrolling in the employer group health plan.
Breaking Down the Benefit
For example, by allowing an employee to opt out of the group health plan and receive the fringe benefit funds in the employee’s 401(k) account instead, the employer is, in effect, offering an incentive to not enroll in the employer’s group health plan. The employee would be receiving a benefit as a result of declining the group health plan coverage that would otherwise be primary to Medicare. Therefore, employees in current active employee status who are also beneficiaries may NOT decline participation in the employer’s group health plan that would otherwise be primary to Medicare. This is so that the fringe benefit funds can be applied to other benefits, unless such employees have other group health coverage that would be primary to Medicare. A group coverage through a working spouse, for example. CMS deems this to be, in effect, offering an incentive to not enroll in the employer’s group health plan. An additional incentive for compliance under the MSP rules for employers subject to the SCA and DBA, is that CMS has the ability to withhold contract payments through Treasury for claims that Medicare paid as primary, when there was other coverage that should have been primary.
To learn more, read the MSP Guidance for Interaction with SCA and DBA.
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