Must Employers Carry Medicare Eligible Active Employees and Spouses?

 by Keisha N. Jackson

As health care costs continue to rise, many employers are considering creative solutions for keeping costs low without drastically changing the benefits offered to active employees.  Active employees who have spouses on Medicare or who are themselves eligible for Medicare may have become more attractive in the cost-benefit analysis done by employers.   Some employers report rate jumps of an average of 25% per year in the past four years for Medicare eligible spouses of active employees.  But, don't be fooled.  Employers must resist the temptation to treat Medicare eligible active employees and/or their spouses differently than non-Medicare eligible active employees and spouses.   

There is no legal way to remove just Medicare eligible spouses of active employees from an employer group plan or to have Medicare pay as the primary insurer for those individuals.  The Medicare Secondary Payer statute (MSP) 42 U.S.C. §1395y was specifically enacted in 2003 to ensure that Medicare benefits are secondary to employer plans when dealing with non-retirees.  In the context of Medicare, a primary plan is defined as "a group health plan or large group health plan, a workers' compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan), or no-fault insurance."  The MSP does not allow Medicare payment for services for which it can reasonably be expected that payment will be made under a group health plan.  Medicare's designation as the secondary insurer is upheld even if state law or the group health plan states that its benefits are secondary to Medicare.  The statute does exclude group health plans of small employers.  Small employers are defined by the statute as having less than twenty (20) employees for each working day in each of twenty or more calendar weeks in the current calendar year or the proceeding calendar year.   As you've probably guessed, the purpose of the MSP was to reduce federal health care costs by shifting the burden of primary coverage from Medicare to private insurance carriers. 

The MSP has an anti-discrimination clause to protect actively working Medicare eligible individuals from receiving less coverage than their non-eligible coworkers.  The clause states that "a group health plan may not take into account that an individual or spouse who is covered under the plan by virtue of the individual's current employment status with an employer is entitled to [Medicare] benefits."  42 U.S.C. §1395y (2013).  Therefore, employers are not allowed to offer Medicare-eligible employees reduced coverage while offering comprehensive coverage to other employees.  Additionally, the MSP does not allow an employer group plan to take into account that an employee's age entitles him to Medicare benefits.  This prevents group plans from "carving out" expenses covered by Medicare, effectually making the plan's coverage primary to Medicare. 

However, if those employees who are eligible for Medicare choose to opt out of the employer group health plan, then Medicare will become the primary insurer.  Employers that have employees who choose to opt out of the group health plan need to be very careful not to provide opt out incentives for Medicare eligible employees.  The MSP statute can impose a $5,000 penalty per individual against any employer found to offer financial incentives for Medicare eligible individuals to opt out of their group health plan.  Employers cannot reduce the costs of group health plans by singling out Medicare eligible individuals (active employees or spouses of same) for less comprehensive benefits due to Medicare eligibility.  What this means is that employers will need to look elsewhere for solutions to rising health care costs. 

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