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© 2012 Employee Benefits Corporation. 2 Medicare Entitlement: Impact on Employer Benefit Plans and COBRA Peter Antonie Compliance Communications Specialist.

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Presentation on theme: "© 2012 Employee Benefits Corporation. 2 Medicare Entitlement: Impact on Employer Benefit Plans and COBRA Peter Antonie Compliance Communications Specialist."— Presentation transcript:

1 © 2012 Employee Benefits Corporation

2 2 Medicare Entitlement: Impact on Employer Benefit Plans and COBRA Peter Antonie Compliance Communications Specialist Employee Benefits Corporation The material provided in this webinar is by Employee Benefits Corporation and is for general information purposes only. The information does not constitute legal advice and may not be relied upon by anyone as such. Nor may the information be disseminated in any form.

3 © 2012 Employee Benefits Corporation 3 Overview Medicare eligibility and Medicare entitlement are not the same Medicare entitlement has direct impact on an employer’s benefit plans Medicare entitlement has special meaning when applying COBRA Understanding the difference between Medicare eligibility and entitlement helps minimize compliance issues

4 © 2012 Employee Benefits Corporation 4 Our Agenda Three Es of Medicare Medicare entitlement and the employer’s group health plan Medical plan Health Reimbursement Arrangement (HRA) Other plans (dental, vision, etc.) Medicare entitlement and the employer’s cafeteria plan Medicare entitlement and COBRA Common compliance issues

5 © 2012 Employee Benefits Corporation 5 Three Es of Medicare Eligible for Medicare Enrollment in Medicare Entitled to Medicare Rather than thinking about Medicare, think of a 30 year old employee, Joe, who starts work with ABC Co. When is he eligible for coverage? What does he need to do to get enrolled? What does he have that indicates he is entitled to ABC’s benefits?

6 © 2012 Employee Benefits Corporation 6 Three Es of Medicare Eligible for Medicare due to: Age – 65 or older Disability – as determined by the Social Security Administration (SSA) Eligible 29 months after disability date  5 month waiting period for SSA disability benefits + 24 months of benefit receipt If ALS, eligible 1 st month of SSA disability benefits End stage renal disease (ESRD) – kidney failure Eligible upon diagnosis of ESRD

7 © 2012 Employee Benefits Corporation 7 Three Es of Medicare Enrollment in Medicare ( There are many specific Medicare enrollment rules and circumstances beyond the scope of this webinar ) Eligible individual can enroll in any or all Parts of Medicare Part A = Hospital expenses Part B = Outpatient services (e.g., doctors, lab fees, durable medical equipment, etc.) Part C = Medicare Advantage (private insurance that minimally provides Parts A & B coverage) Part D = Outpatient drug coverage through private insurers

8 © 2012 Employee Benefits Corporation 8 Three Es of Medicare Enrollment in Medicare Common issue: Bill is 66 and still working. Is he eligible for Medicare? Yes, he is of age Is he entitled to Medicare? Only if he is enrolled in any of the Parts of Medicare

9 © 2012 Employee Benefits Corporation 9 Three Es of Medicare Enrollment in Medicare (continued) Parts A & B If over 65 and receiving SSA income benefits, enrollment is automatic (only Part A in Puerto Rico) (can decline Part B) If over 65 and not receiving SSA income benefits, can enroll online for A or B or both

10 © 2012 Employee Benefits Corporation 10 Three Es of Medicare Enrollment in Medicare (continued) Parts A & B (continued) 7-month initial enrollment period for those age 65 who are not in receipt of SSA income benefits Birth month plus 3 months prior and after Sign up prior to birth month for coverage effective 1 st day of birth month (1 st of prior month if birthday is on the 1 st ), otherwise coverage is delayed Can delay enrollment if covered though own or spouse’s active employment with no late enrollment penalty (8-month special enrollment period (SEP) applies when employment ends)

11 © 2012 Employee Benefits Corporation 11 Three Es of Medicare Enrollment in Medicare (continued) Parts A & B (continued) If disabled and have received 24 months of SSA disability benefits (1 st month for ALS), enrollment is automatic (can decline Part B) If ESRD can enroll online for A or B or both Special Enrollment Period (SEP)– anytime while covered by active employment (own or family member’s) or during first 8-months after active employment coverage ends (does not apply to individuals with ESRD)  Late enrollment penalties do not apply if enrolling under SEP

12 © 2012 Employee Benefits Corporation 12 Three Es of Medicare Enrollment in Medicare (continued) Part C (generally not available to those with ESRD) Must have Parts A & B Can enroll when first Medicare eligible or during annual open enrollment period (10/15 – 12/7; coverage is effective 1/1 ) Part D Can enroll online when first eligible, during SEP or annual open enrollment (10/15 – 12/7; coverage is effective 1/1 )

13 © 2012 Employee Benefits Corporation 13 Three Es of Medicare Enrollment in Medicare (continued) Late enrollment premium penalty applies to individuals not covered by group health plan due to their own or spouse’s active employment when first eligible for Medicare Part A = 10% for twice the number of years could have been enrolled (e.g., delay for 2 yrs, pay penalty for 4 yrs) Part B = 10% for each 12-month period not timely enrolled (e.g., enroll 2 years late, pay 20% penalty for life) Part D = 1% for each month not timely enrolled and more than 63-day gap without creditable drug coverage (e.g., enroll 15 months late, pay 15% penalty for life)

14 © 2012 Employee Benefits Corporation 14 Three Es of Medicare Enrollment in Medicare (continued) Part A & B annual late enrollment period is 1/1 – 3/31 for July 1 coverage Part D annual late enrollment period is 4/1 – 6/30 for July 1 coverage

15 © 2012 Employee Benefits Corporation 15 Three Es of Medicare Entitled to Medicare Eligible individual is Enrolled in any Part of Medicare Traditional Medicare, Medicare Advantage Plan or Part D insurer will provide reimbursement of eligible expenses for the Part(s) of Medicare the individual is enrolled in Medicare Advantage Plan provides coverage for Parts A & B and may provide additional coverage (e.g., eye exams, glasses, drugs, etc.)

16 © 2012 Employee Benefits Corporation 16 Medicare Entitlement and the Employer’s Group Health Plan Medical plan Health Reimbursement Arrangement (HRA) Other group health plans (e.g., dental, vision, etc)

17 © 2012 Employee Benefits Corporation 17 Medicare Entitlement and the Employer’s Group Health Plan Employer’s group medical plan Medicare Secondary Payer (MSP) rules apply Employer’s medical plan is primary to Medicare for active employee coverage when: 20 or more employees and employee or spouse is entitled to Medicare due to age 100 or more employees and employee or family member is entitled to Medicare due to disability Employer of any size after initial 30-month coverage period for any covered individual entitled to Medicare due to ESRD

18 © 2012 Employee Benefits Corporation 18 Medicare Entitlement and the Employer’s Group Health Plan Employer’s medical plan (continued) Must provide quarterly reporting to the Centers for Medicare and Medicaid Services (CMS) Responsible Reporting Entity (RRE) is the insurer or self-funded plan TPA Purpose of reporting is to identify individuals entitled to Medicare who have active employment coverage that is primary To save Medicare from paying for services as primary payer

19 © 2012 Employee Benefits Corporation 19 Medicare Entitlement and the Employer’s Group Health Plan Employer’s medical plan (continued) MSP rules: Plan cannot take into account employee or family member’s Medicare entitlement while coverage is due to active employment Employer’s plan is primary payer Plan benefits and reimbursement must be the same as other active employees Employer cannot provide any incentives for Medicare entitled individual to drop coverage while covered due to active employment

20 © 2012 Employee Benefits Corporation 20 Medicare Entitlement and the Employer’s Group Health Plan Employer’s medical plan (continued) Many group medical plans are written to coordinate benefits with Medicare for individuals who are eligible for Medicare and not covered through active employment Regardless of whether individual enrolls in Medicare, or not Employer’s plan only pays what Medicare did not or would not have paid MSP rules do not apply to coverage due to inactive stat us, including COBRA coverage

21 © 2012 Employee Benefits Corporation 21 Medicare Entitlement and the Employer’s Group Health Plan Employer’s medical plan (continued) If medical plan is a high deductible health plan (HDHP), employee who is entitled to Medicare cannot make or receive health savings account (HSA) contributions Medicare coverage is not HDHP plan – is disqualifying coverage

22 © 2012 Employee Benefits Corporation 22 Medicare Entitlement and the Employer’s Group Health Plan Employer’s HRA MSP rules apply Employer’s HRA is primary to Medicare for active employee coverage when: 20 or more employees and employee or spouse is entitled to Medicare due to age 100 or more employees and employee or family member is entitled to Medicare due to disability Employers of any size after initial 30-month coverage period for any covered individual that has ESRD

23 © 2012 Employee Benefits Corporation 23 Medicare Entitlement and the Employer’s Group Health Plan Employer’s HRA (continued) Must provide quarterly reporting to the Centers for Medicare and Medicaid Services (CMS) Responsible Reporting Entity (RRE) is the employer or HRA TPA HRA that provides less than $5,000 in annual benefit, including any roll over, not subject to reporting Purpose is to identify individuals entitled to Medicare who have HRA coverage that should be primary to Medicare If HRA is not subject to reporting, Medicare will reimburse expenses after group health plan pays its share. Medicare entitled participant should wait to submit HRA claim until Medicare pays its share of expense

24 © 2012 Employee Benefits Corporation 24 Medicare Entitlement and the Employer’s Group Health Plan Employer’s HRA (continued) MSP rules HRA cannot take into account employee or family member’s Medicare entitlement while coverage is due to active employment Employer’s HRA is primary payer, unless not subject to reporting HRA benefits and reimbursement must be the same as other active employees Employer cannot provide any incentives for Medicare entitled individual to drop HRA coverage while covered due to active employment

25 © 2012 Employee Benefits Corporation 25 Medicare Entitlement and the Employer’s Group Health Plan Employer’s other group health plans (e.g., dental, vision, etc.) MSP rules do not apply Medicare entitlement has no bearing on dental, vision, etc., coverage

26 © 2012 Employee Benefits Corporation 26 Medicare Entitlement and the Employer’s Cafeteria Plan Medicare entitled employee cannot make or receive pre- tax HSA contributions Medicare entitlement of the employee, spouse, dependent or eligible child is a Permitted Election Change Event (Treasury Regulation (e)) Medicare entitlement allows participant to reduce or revoke prior pre-tax elections Drop medical plan coverage for the entitled individual (is not a COBRA event)  If the employee drops coverage which then causes family members to lose coverage, family members are not offered COBRA Revoke or reduce Health Care FSA election

27 © 2012 Employee Benefits Corporation 27 Medicare Entitlement and COBRA COBRA is offered due to a triggering event that causes loss of group health plan coverage Triggering events* (1) The death of a covered employee; (2) The termination (other than by reason of the employee's gross misconduct), or reduction of hours, of a covered employee's employment; (3) The divorce or legal separation of a covered employee from the employee's spouse; * Treasury Regulation § B-4, Q/A – 1(a)

28 © 2012 Employee Benefits Corporation 28 Medicare Entitlement and COBRA Triggering events - continued (4) A covered employee's becoming entitled to Medicare benefits under Title XVIII of the Social Security Act ( 42 U.S.C ggg); (5) A dependent child's ceasing to be a dependent child of a covered employee under the generally applicable requirements of the plan; or (6) A proceeding in bankruptcy under Title 11 of the United States Code with respect to an employer from whose employment a covered employee retired at any time.

29 © 2012 Employee Benefits Corporation 29 Medicare Entitlement and COBRA Medicare Entitlement of employee COBRA recognizes this as a triggering event, if employee loses coverage due to Medicare entitlement. If so, spouse and dependents offered COBRA for 36 months. BUT DOES NOT OCCUR!! Medicare Secondary Payer (MSP) rules cause employer’s group health plan to remain primary ( 42 U.S.C. §§1395y(b)(1)(A)(i)(I))42 U.S.C. §§1395y(b)(1)(A)(i)(I) Employee does not lose group health plan coverage due to Medicare entitlement Therefore, Medicare entitlement of the employee does not create a qualifying event for the family or employee (no loss due to Medicare entitlement) Eventual triggering event occurs at retirement or if hours are reduced prior to retirement Employee who voluntarily drops group health plan due to Medicare entitlement does not create COBRA event for employee or family members Voluntarily dropping coverage is not a triggering event

30 © 2012 Employee Benefits Corporation 30 Medicare Entitlement and COBRA Four scenarios: 1.Qualified beneficiary (QB) becomes entitled to Medicare after electing COBRA 2.QB was entitled to Medicare prior to event or prior to electing COBRA 3.QB is deemed disabled prior to event or within first 60 days of COBRA coverage 4.Employer provides paid benefits for retirees

31 © 2012 Employee Benefits Corporation 31 Medicare Entitlement and COBRA 1.Qualified beneficiary (QB) becomes entitled to Medicare after electing COBRA COBRA continuation ends early for the QB (coverage under Medicare is considered another group health plan) (Treas. Reg. § B-7, Q/A-3(a).)Treas. Reg. § B-7, Q/A-3(a). Any other QBs on the plan continue for the remainder of the original continuation period Example: Bob retired and elected COBRA for himself and his wife Mary. 4 months later, Bob becomes entitled to Medicare. Bob’s COBRA ends, but Mary can continue for the remainder of the original 18-month COBRA period (Bob’s Medicare entitlement does not cause Mary to lose her COBRA coverage) Note: This is not a 36-month multiple event (second qualifying event) for Mary ( Rev. Rul )Rev. Rul

32 © 2012 Employee Benefits Corporation 32 Medicare Entitlement and COBRA 2. QB was entitled to Medicare prior to event or prior to electing COBRA If a QB becomes entitled to Medicare before electing COBRA, the QB is provided the maximum coverage period arising from the event ( 42 U.S.C. §1395)42 U.S.C. §1395 Example: Bob became entitled to Medicare 6 months before retiring. Bob is offered 18-months of COBRA at retirement. Example: Mary’s husband became entitled to Medicare prior to Mary’s retirement. Mary and her husband are both offered COBRA for 18-months when Mary retires. Example: Bill retires June 30 and will turn age 65 in August. Bill enrolls in Medicare in July and becomes entitled to Medicare August 1. Bill was offered COBRA effective July 1 and elects COBRA August 10 (within his 60-day election period). Bill is eligible for 18-months of COBRA coverage, counted from July 1.

33 © 2012 Employee Benefits Corporation 33 Medicare Entitlement and COBRA 2. QB was entitled to Medicare prior to event or prior to electing COBRA (continued) Spouse/family member QBs of an employee who became entitled to Medicare prior to termination (retirement) or reduction of hours are offered COBRA for: 18-months from event date; or, 36-months from Medicare entitlement date, whichever produces greater period of continuation after event

34 © 2012 Employee Benefits Corporation 34 Employee’s Medicare entitlement prior to retirement Treated as a multiple event (from EBIA COBRA Compliance Manual)

35 © 2012 Employee Benefits Corporation 35 Medicare Entitlement and COBRA 2. QB was entitled to Medicare prior to event or prior to electing COBRA (continued) Example: Mary became entitled to Medicare one month before retiring. Mary is offered COBRA for an 18-month period. Mary’s husband, Harry, is offered COBRA for a 35-month period (go back one month to Mary’s Medicare entitlement date and count 36 months) because this produces a greater continuation period for Harry

36 © 2012 Employee Benefits Corporation 36 Medicare Entitlement and COBRA 3. QB is deemed disabled, by SSA, prior to event or within first 60 days of COBRA coverage Qualifying event must be termination of employment or reduction in hours of the employee Disabled QB need not be the former covered employee Disabled QB and any family member QBs are eligible for 11-month COBRA extension added to original 18-month period (29-month total) If disabled QB was entitled to Medicare prior to electing COBRA, disabled QB’s Medicare entitlement has no bearing on continuation period – still eligible for 11-month extension If disabled QB becomes entitled to Medicare during 18-month period or 11-month extension, disabled QB’s COBRA ends early Remaining family member QBs eligible to continue on COBRA up to end of 11-month extension

37 © 2012 Employee Benefits Corporation 37 Medicare Entitlement and COBRA 3. QB is deemed disabled, by SSA, prior to event or within first 60 days of COBRA coverage (continued) Example – Mary resigns to take care of her disabled husband, Joe. Joe was deemed disabled by SSA 4 months before Mary retired. Mary and Joe are offered COBRA for 18 months and are both eligible for the 11-month disability extension (total of 29 months). Joe will become entitled to Medicare 25 months after Mary’s retirement Joe’s COBRA ends after 25 months Mary’s COBRA continues to the end of the 29-month period

38 © 2012 Employee Benefits Corporation 38 Medicare Entitlement and COBRA 4. Employer provides paid benefits for retirees – 3 options 1.Postpone loss to end of employer payment No COBRA if payment ceases more than 18 months after retirement 2.Offer COBRA at time of retirement Employer payment contingent on electing COBRA and paid benefit is concurrent with COBRA 3.Offer COBRA at retirement, at retiree expense, or alternative employer paid coverage Employer’s payment offered for alternative retiree coverage (can be the same plan at same premium or different benefits or premiums) if COBRA is waived

39 © 2012 Employee Benefits Corporation 39 Option 1 - Postponed loss Retirement is termination of employment Loss of coverage must occur within 18-months of retirement for COBRA to be offered when loss occurs (could be loss of paid benefit or family member loss such as divorce, dependent status, etc.) If retiree becomes entitled to Medicare within 18- months of retirement, COBRA is offered for 18-month period to retiree and family member QBs if paid benefit ceases (counted from loss of coverage date, not retirement date) Triggering event was retirement, not Medicare entitlement If loss occurs more than 18-months after retirement, there is no COBRA to offer

40 © 2012 Employee Benefits Corporation 40 Option 1 - Postponed loss example ABC Corp provides 3 years of paid health insurance or to age 65, whichever occurs first, for employees that retiree at or after age 57 Assume Bill retired at age 64. One year later ABC’s payment ceases due to Bill turning age 65 (Medicare entitlement). Bill and his wife lose employer paid coverage and are offered COBRA for 18 months counted from his loss of employer payment date ABC postponed Bill’s loss due to his termination and that loss occurred one year later. The COBRA period is offered for termination of employment, which is an 18-month period

41 © 2012 Employee Benefits Corporation 41 Option 2 - Offer COBRA to run concurrent with paid benefit COBRA period for retiree is 18 months Employer payment can be for any period of time and is contingent on retiree electing COBRA If employer payment ceases prior to end of 18- month period due to Medicare entitlement of the retiree, any family member QBs stay on COBRA for remainder of 18-month period Employer can continue to pay for family member QBs or QBs can pay full premium

42 © 2012 Employee Benefits Corporation 42 Option 2 - Concurrent COBRA example ABC Corp provides 3 years of paid health insurance or to age 65, whichever occurs first, for employees that retiree at or after age 57 and elect COBRA Assume Bill retired at age 64. One year later ABC’s payment ceases due to Bill’s Medicare entitlement. Bill’s COBRA ends. His wife can continue COBRA for remainder of original 18 months at her expense if Bill’s employer doesn’t continue to pay for her

43 © 2012 Employee Benefits Corporation 43 Option 3 - Provide alternative paid retiree coverage Retiree is offered choice of COBRA, at retiree expense, or employer paid alternative coverage for the specified period Employer payment of alternative coverage contingent on retiree waiving COBRA for active employee plan Employer paid alternative coverage can be same plan that active employees have or separate plan When paid benefit ends, retiree is not offered COBRA – waived earlier Family member QBs that lose the alternative coverage due to Medicare entitlement of the retiree are offered COBRA for 36-months from Medicare entitlement date

44 © 2012 Employee Benefits Corporation 44 Option 3 - Alternative coverage example ABC Corporation provides alternative retiree coverage of 3 years of paid health insurance or to age 65, whichever occurs first, for employees that retiree at or after age 57 and waive COBRA Assume Beth retired at age 64. One year later ABC’s alternative coverage ceases due to Beth turning age 65 and becoming entitled to Medicare. Beth’s spouse is offered 36 months COBRA, from Beth’s Medicare entitlement date, if he loses the alternative coverage due to Beth’s Medicare entitlement If ABC continues to pay for his alternative coverage, there is no COBRA offer

45 © 2012 Employee Benefits Corporation 45 Common Compliance Issues Misinterpreting Medicare eligibility versus Medicare entitlement Not complying with MSP rules Not providing proper reporting to CMS for plan coverage status Not performing due diligence for pre-tax HSA contributions and Medicare entitled employee Improperly applying COBRA when Medicare entitlement is involved

46 © 2012 Employee Benefits Corporation 46 Summary Medicare eligibility and Medicare entitlement are not the same Medicare entitlement has direct impact on an employer’s medical plan, HRA and cafeteria plan Medicare entitlement has special meaning when applying COBRA – both the offer of COBRA and the COBRA continuation coverage period

47 © 2012 Employee Benefits Corporation 47 Questions? Any questions can be addressed by or phone at your convenience Compliance Department Thanks for Attending!! Visit our online blog:


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