Can employers encourage Medicare enrollment?

Question: Is there anything preventing a company from offering a Medicare Supplement Plan to employees over age 65 to encourage Medicare enrollment?

Compliance Team Answer:

MSP: Incentives to Opt-Out of Employer Plan Prohibited

In general, the Medicare Secondary Payer (MSP) rules prohibit employer-sponsored group health plans from “taking into account” the Medicare entitlement of a current employee or a current employee’s spouse or family member. (42 USC §1395y(b)(1)).  There are a number of rules that flow from this general principle, including the coordination of benefits requirement that the employer-sponsored group health plan pay primary (and Medicare pay secondary) on a claim if the individual is covered under both.  Another basic requirement of the MSP rules is that an employer-sponsored group health plan provide the same benefits under the same conditions to employees and spouses who are age 65 or older.

Most importantly for this issue, these MSP rules prohibit employers from offering individuals entitled to Medicare any financial or other incentives to opt-out of the employer-sponsored group health plan.  The applicable regulation is copied below for your reference.  This means the employer cannot offer an opt-out (or larger opt-out incentive) to those who are age 65.  **It also means that the employer cannot offer a plan to employees that is designed to supplement Medicare coverage. **

The penalty for violating these prohibited incentive rules is $5,000 per violation.  CMS takes the position that the MSP rules are violated every time a prohibited offer is made, whether orally or in writing.

Note that CMS has confirmed that no violation of the MSP rules occurs where employees entitled to Medicare have the same cash-out rights as employees who are not entitled to Medicare.  (http://www.americanbar.org/content/dam/aba/migrated/jceb/2002/0205hhs_ltr.authcheckdam.pdf — See Q/A-3).  So offering an opt-out credit to all employees (including those who are Medicare-eligible) would be permitted.

Summary

Employers should avoid creating any special arrangement with respect to Medicare-eligible active employees.  This includes offering a Medicare supplement policy for employees who are Medicare-eligible. The MSP rules prohibit such an arrangement.

Employers that offer a retiree medical plan frequently design the plan to pay secondary to Medicare, and in some cases to cover all or a portion of the cost of a Medicare supplement plan.  This is permitted because the covered individuals are no longer active employees (and therefore the MSP rules do not apply).  However, this plan design is not available for active employee coverage.

Regulations:

42 CFR §411.103 Prohibition against financial and other incentives.

(a) General rule.

An employer or other entity (for example, an insurer) is prohibited from offering Medicare beneficiaries financial or other benefits as incentives not to enroll in, or to terminate enrollment in, a GHP that is, or would be, primary to Medicare. This prohibition precludes offering to Medicare beneficiaries an alternative to the employer primary plan (for example, coverage of prescription drugs) unless the beneficiary has primary coverage other than Medicare. An example would be primary coverage through his own or a spouse’s employer.

(b) Penalty for violation.

• _(1) _Any entity that violates the prohibition of paragraph (a) of this section is subject to a civil money penalty of up to $5,000 for each violation; and

• _(2) _The provisions of section 1128A of the Act (other than subsections (a) and (b)) apply to the civil money penalty of up to $5,000 in the same manner as the provisions apply to a penalty or proceeding under section 1128A(a).

42 USC §1395y(b)(1)(A)(i)(l):

(b) Medicare as secondary payer.

_(1) _Requirements of group health plans.

(A) Working aged under group health plans.

(i) In general. A group health plan—

(I) may not take into account that an individual (or the individual’s spouse) who is covered under the plan by virtue of the individual’s current employment status with an employer is entitled to benefits under this subchapter under section 426(a) of this title, and

(II) shall provide that any individual age 65 or older (and the spouse age 65 or older of any individual) who has current employment status with an employer shall be entitled to the same benefits under the plan under the same conditions as any such individual (or spouse) under age 65.

CMS Guidance:

https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/EmployerServices/Downloads/Instructions-for-completing-the-Group-Health-Plan-Report-for-the-IRS-SSA-CMS-Data-Match.pdf

Beneficiaries who reject the employer plan may purchase Medicare supplemental (Medigap) coverage from some source other than the employer. The employer may not subsidize, purchase, or be involved in the arrangement of an individual supplement policy for the employee or family member.

ABA JCEB DOL FAQ:

https://www.americanbar.org/content/dam/aba/migrated/jceb/2006/JCEB2006DOL.authcheckdam.pdf

Question 14: Participant X has reached the age that X could qualify for Medicare benefits. X is employed by Company W. Company W is “encouraging” X to disenroll in its health plan and to enroll in Medicare because that will save Company W significant amounts on its health care premiums. Does this violate ERISA § 510?

Proposed Answer 14: Company W’s actions are a violation of ERISA § 510.

DoL Answer 14: Whether actions violate section 510 depends on the facts. There are not sufficient facts in the question to make a determination. However, DoL staff opined that there may be ways to encourage a participant to disenroll that would not violate section 510, but would encourage the desired disenrollment (such as a payment to the employee). Further discussion involved the fact that an encouragement to disenroll, such as a payment, would be a clear violation of the Medicare Secondary Payor Rules, which prohibit employers from engaging in such encouragement. Further discussion raised the unanswered question of whether the violation of another federal law (Medicare, for example) by a plan fiduciary would create a violation of the fiduciary’s duties under ERISA.