Medicare and COBRA Can Cause Confusion

Employees – and their employers – are often confused when the employee who is Medicare-eligible retires. Some employees want to continue their coverage under COBRA because they’ve met their deductible for the year or simply because they’re familiar with the employer plan in which they were enrolled while working.

But, making the decision to take COBRA can have unforeseen consequences. COBRA is not creditable coverage for Medicare Part B. An employee who goes on COBRA rather than enrolling in Medicare is not eligible for a Special Enrollment Period for Medicare Part B when COBRA ends. COBRA is not considered “coverage based on current employment.” Someone in this situation will face the Part B late enrollment penalty of 10% per year for life.

Employees may not realize that the rules for COBRA are different when it comes to Medicare Part D. As such, if an employee researches how COBRA interacts with Medicare Part D, they’ll find that COBRA may be creditable coverage for Medicare Part D, prescription drug coverage. In the case of  Medicare Part D, a person will have a Special Enrollment Period to join a Medicare drug plan without paying a penalty when COBRA coverage ends.

So, COBRA is not creditable coverage for Medicare Part B, but it is creditable coverage for Medicare Part D. No wonder there’s confusion.

NAHU has been working with Congressional leaders on a legislative fix to the Medicare Part B problem. Legislation that would make COBRA coverage creditable for Medicare Part B is expected to be introduced in the next weeks.

A knowledgeable insurance broker can help navigate these tricky transitions from work to retirement. Also, the website and book Medicare & You from the Centers for Medicare & Medicaid Services is an excellent resource. The book is updated annually and covers a wide variety of Medicare related information including enrollment, benefits and the like.

October Due Date for Medicare Creditable Coverage Notices

Employers with Medicare eligible participants must provide a notice that specifies whether the plans that they sponsor constitute creditable coverage for Medicare Part D. The notice must be provided in conjunction with the Medicare Part D annual election period which begins on October 15.

This notice must be provided to all Medicare eligible individuals who are covered or eligible for a plan that includes prescription drugs.  Notices must be provided to those individuals on COBRA as well.

Employer plan sponsors are required by CMS to provide creditable coverage status to Part D eligible members at least once a year and at the following times:

  • Prior to an individual’s initial enrollment period;
  • Prior to the effective date of coverage for any Medicare-eligible individual that joins your plan;
  • Whenever prescription drug coverage ends or changes so that it is no longer creditable or becomes creditable;
  • Prior to the Medicare Part D Annual Coordinated Election Period beginning on October 15 of each year; or
  • Upon the request of a beneficiary.

Models of the notice are available here.  There are model notices for both creditable and non-creditable coverage in both English and Spanish.

Creditable coverage is defined as coverage that equals or exceeds the actuarial value of standard prescription drug coverage under the Medicare prescription drug benefit. And in communications to Part D eligible individuals, CMS has described creditable coverage as prescription drug coverage that “is, on average for all plan participants, expected to pay out as much as standard Medicare prescription drug coverage pays.”

Employers with insured plans should have received guidance from their carriers indicating whether their plan is creditable or not. In many cases, a high deductible health plan (HDHP) may not be creditable coverage.

Employers can use a “simplified” means to determine whether coverage is creditable or not. The plan must meet four (4) standards to be deemed creditable. A prescription drug plan is deemed to be creditable if it:

1) Provides coverage for brand and generic prescriptions;

2) Provides reasonable access to retail providers;

3) The plan is designed to pay on average at least 60% of participants’ prescription drug

expenses; and

4) Satisfies at least one of the following:

a) The prescription drug coverage has no annual benefit maximum benefit or a maximum annual benefit payable by the plan of at least $25,000, or

b) The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare eligible individual.

c) For entities that have integrated health coverage, the integrated health plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000 and has no less than a $1,000,000 lifetime combined benefit maximum.

An integrated plan is any plan of benefits that is offered to a Medicare eligible individual where the prescription drug benefit is combined with other coverage offered by the entity (i.e., medical, dental, vision, etc.). The plan must have all of these provisions:

  • A combined plan year deductible for all benefits under the plan
  • A combined annual benefit maximum for all benefits under the plan, and
  • A combined lifetime benefit maximum for all benefits under the plan.

The Creditable Coverage Simplified Determination process guidance is here.

Employers with account based plans may find that their coverage is creditable despite the carrier’s assessment. Coverage may be creditable if the employer has an HRA arrangement. The HRA amount may factor in to the creditable assessment in whole or in part depending on how the plan is structured. Guidance on determining creditable coverage status with account based plans, including HRAs, can be found here.

Individuals should keep any notice in case it is required when they decide to sign up for Medicare Part D. The notice may be necessary to show that they had creditable coverage and are not, therefore, subject to the penalty of one percent per month for late enrollment.

Employers also have an obligation to advise CMS whether coverage is creditable or not. The Disclosure to CMS Form can be found here.

Counting Employees Not as Easy as 1…2…3

Most children can count to 10 in preschool. The average child can count to 200 at age six. But, employee benefit professionals know that counting – when counting employees — is anything but easy.

The reason that counting employees isn’t easy is that it depends why they’re being counted. Different laws at the federal and state level count employees in different ways. This is particularly true for laws that impact employee benefits.

The Affordable Care Act (ACA) requires that employers count employees to determine whether an employer is an “applicable large employer” or ALE.  An ALE is subject to the employer shared responsibility requirements of the law. First an employer needs to consider if the firm is part of a controlled group. Then, an employer must determine the number of full-time and full-time equivalent employees. Employers must make this determination of ALE status each year. The IRS guidance on determining ALE status can be found here.

COBRA, the federal employee continuation law requires a different method of counting employees. COBRA requires that employers count full-time and part-time employees. A part-time employee is counted as a fraction equal to the number of hours worked divided by the hours an employee must work to be considered full-time. A more detailed explanation of counting employees for COBRA purposes can be found in An Employer’s Guide to Group Health Continuation Coverage Under COBRA.

State continuation laws may count employees differently than COBRA.

Medicare Secondary Payer (MSP) provisions require yet another counting method. The MSP provision applies to group health plans of employers with 20 or more employees. Generally speaking, MSP looks to employees on the payroll. But, the technical aspects of counting employees are more involved as Section 10.3 of the Medicare Secondary Payer (MSP) Manual Chapter 2 reveals.

Form 5500 filing requirements for welfare plans add yet another counting complication. A welfare benefit plan that covered fewer than 100 participants as of the beginning of the plan year may be exempt from the filing requirements. The instructions for Form 5500 provide the details.

Other laws or regulations that may require different counting methods include:

  • Family and Medical Leave Act (FMLA)
  • Pregnancy Discrimination Act (PDA)
  • Age Discrimination Employment Act (ADEA)
  • PCORI fee
  • Form W-2 cost of health benefits requirement
  • Numerous other federal and state laws.

HSAs and Medicare Conflicts

Employees who have enjoyed the benefit of health savings accounts (HSAs) may be in for a taxing surprise when they enroll in Medicare. That’s because Medicare enrollment disqualifies someone from contributing to an HSA.

Working employees may sign up for premium free Medicare Part A when they are first eligible for coverage at age 65. Signing up for Part A or signing up for social security, which triggers enrollment in Part A, requires a person to cease making HSA contributions. A person who signs up for social security is automatically signed up for Medicare Part A.

By claiming social security benefits after age 65, an automatic retroactive coverage period for Part A is triggered. The retroactive period is limited to six months or the entitlement date for Medicare, whichever is shorter. HSA contributions made during this Part A retroactive period may result in an IRS penalty.

Working aged employees or spouses can delay enrollment in Medicare Parts A and B if they are enrolled in an employer group health plan. Before considering this option, it’s important to understand whether the employer plan will assume coordination with Medicare benefits. If Medicare is the primary payer, the employee could have to pay the expenses that Medicare would have paid out of their own pocket.

Employees should discuss their Medicare and HSA options with their benefits advisor and accountant well in advance of reaching age 65.

Here are some resources that are helpful in understanding Medicare for employees: “I have employer coverage”

Coordination of Benefits brochure

Medicare & Other Health Benefits: Your Guide to Who Pays First

Health Savings Accounts (HSA) and Medicare

Medicare Part A & Part B sign up periods

IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans

Medicare Enrollment and “Seamless Conversion”

Anyone approaching Medicare age is sure to be swamped with mail regarding the coverage options to consider. For many people, these mailers are put aside or disregarded as “junk mail.” But, Medicare enrollment is an important decision which has both medical care and financial implications.

Individuals are finding that a process intended to make Medicare enrollment simpler is sometimes leading to undesired consequences. CMS allows insurance companies to automatically enroll individuals who have current healthcare coverage into a Medicare Advantage (MA) plan offered by the insurance company when the person first becomes eligible for Medicare.

This process is called “seamless conversion enrollment.” Individuals will receive a written notice at least 60 days prior to the Medicare Advantage coverage effective date. Someone who doesn’t wish to have the MA coverage offered must opt-out of the coverage before the coverage begins.

CMS has released a list of insurance companies that have received approval for “seamless conversion.” It can be found here. CMS has suspended approving additional carriers pending a review of “seamless conversion” amid complaints that have surfaced from Medicare enrollees.

“Seamless conversion” may help people who wish to remain with their known insurance company. But, it’s important that anyone enrolled in the MA plan ascertain that any desired medical providers continue to be part of the MA plan.

Selecting any insurance plan – whether as a senior citizen or at any age – is a complicated and confusing obligation. A health insurance broker can help navigate the many options and advise on the most appropriate policy to fit an individual’s needs.