Mastering Medicare: Employer Rules & Regulations

Medicare Part D: Notice of Creditable Coverage

Why is the Notice Required? To inform employees on whether or not their employer-sponsored GHP’s prescription drug coverage is at least as sufficient as a Medicare Part D plan.

Rx Coverage must meet CMS standards to be “creditable”
Creditable status is determined by using the safe harbor method or an actuarial determination
The Carrier or TPA should determine and inform employer clients of creditable status

Why is the Notice Important? Part D individuals who fail to maintain creditable coverage for a period of 63 continuous days or more will face a late enrollment penalty upon Part D enrollment. • Employees need the notice to prove they enrolled timely.

When, Who, and How

When:

Employers are required to provide the Notice annually prior to October 15
Part D open enrollment is October 15 – December 7

Who:

The following individuals must receive the Notice:

Individuals who are “Part D eligible” and are enrolled or seeking to enroll in the employer’s plan that provides prescription drug coverage (includes individuals enrolled in Part A or Part B
It is best practice to provide all employees with the Notice annually due to employers not knowing which employees, spouses, or dependents are enrolled in Part A or Part B or who will be enrolling in the employer’s plan

How:

Notice Delivery Method:

Electronic delivery is permitted to “plan participants who have the ability to access electronic documents at their regular place of work if they have access to the plan sponsor’s electronic information system on a daily basis as part of their work duties.”
Similar to the ERISA electronic disclosure safe harbor rule
First-class mail or hand delivery

Can Medicare Part D Notice be combined with other materials?

Absolutely! With a few exceptions: The Notice may be provided with other materials such as open enrollment or other annual notices as long as it is “prominent and conspicuous”.

“This means the disclosure notice portion of the document (or a reference to the section in the document being provided to the individual that contains the required statement) must be prominently referenced in at least 14-point font in a separate box, bolded, or offset on the first page of the provided plan participant information.”

Notice of Creditable Coverage (CMS Requirements)

Annual Filing with CMS: The Part D rules require plan sponsors to complete an annual online disclosure form to CMS within 60 days after the beginning of the plan year. Reporting is due February 29, 2024. No, this is not a typo due to 2024 being a leap year. It is typically due March 1. CMS disclosure reflects whether the prescription drug coverage under the plan is creditable

Instructions
Filing

Fines & Penalties

Little Known “Secret” No stated penalties for failing to provide or file Notice of Creditable Coverage. However, potential for lawsuit if employee subject to laten enrollment penalty and it was the employer’s “fault” for not providing notice.

Medicare & HSAs – Age 65

Any person turning 65 is HSA eligible, unless:

You’re enrolled in Medicare
You receive Social Security retirement benefits
Receiving Social Security benefits automatically enrolls you in Medicare Part A (no opt-out permitted), and
therefore automatically lose HSA eligibility

You Are No Longer Subject to the 20% Additional Tax

Individuals who reach age 65 do not pay the 20% additional tax on distributions from the HSA for non-medical expenses
This is why HSAs are also frequently used as a retirement savings vehicle (IRA-like)
Individuals will still need to pay the ordinary income tax on any non-medical distribution even if 65+ (like a traditional 401(k)/IRA)

Medicare & HSAs – Post Age 65

Delayed Medicare Enrollment Causes Six-Month Retroactive Enrollment

No retroactive enrollment issue for individuals who enroll in Medicare at age 65 (or begin Social Security prior to age 65)
However, if there is a delay enrolling in Medicare until after first becoming eligible, the later Part A enrollment will be retroactive for up to six months.
The six-month retroactive enrollment in Part A will block HSA eligibility retroactive to the start of the Medicare coverage.
CMS Fact Sheet

Medicare & HSAs – Spending HSA Funds

Distribution Ability not Affected by HSA Eligibility

An individual does not need to maintain HSA eligibility to take tax-free distributions for medical expenses
An individual can use the HSA to cover qualifying medical expenses tax-free even if not eligible to contribute to an HSA
HSA eligibility is only relevant only for determining the ability to make HSA contributions – not for purposes of tax-free distributions

Medicare & HSAs – Paying Premiums

Generally, Cannot Use Qualified HSA Distributions to pay Premiums

Similar to health FSAs, the general rule is that premiums are not a qualifying medical expense for HSAs
This is different HRAs, which do permit distributions for premiums

Exceptions: The Following Premiums Are Qualifying Expenses

COBRA Premiums: COBRA or any other continuation coverage premiums required by federal law (including USERRA continuation coverage)
Long-Term Care Insurance Premiums: Annual limitations for eligible LTC premium amounts apply
Any Health Plan Premium While Individual is Receiving Federal or State
Unemployment: Includes health premiums for a spouse or dependent receiving unemployment
Age 65+ Premiums: Premiums for Medicare (excluding any Medicare supplemental policy) or employer-sponsored retiree coverage

Medicare & HSAs – Premium Option

Example:

Bob is involuntarily terminated from employment at age 64 and begins receiving unemployment
At the time of termination, he was covered under the company’s HDHP with an HSA balance of $7,000
Bob can pay for his COBRA premiums with his $7,000 HSA balance as tax-free qualified distributions
He could also pay for Exchange coverage premiums (or any other coverage) with tax-free HSA distributions because he is receiving unemployment
Upon reaching age 65, Bob can use any remaining HSA funds to pay for Medicare premiums tax-free

Employers & Medicare Secondary Payer Rules

Based on Size & Type: Medicare entitlement is based on age (65+) or disability. (Note: Special rules apply for Medicare entitlement based on ESRD.)

Entitlement Based on Age (65+) 20+ Employees Look to Employee Count in Either:

Current Calendar Year; or
Preceding Calendar Year
Must have 20+ employees on all days in at least 20 calendar weeks
Must have 20+ employees for each working day to count as a calendar week
Count all employees (not just Medicare-eligible employees)
Count full-time and part-time employees

Entitlement Based on Disability 100+ Employees Applies to a “Large Group Health Plan”

Employer must normally employ at least 100 employees on a “typical business day” during the previous calendar year
Means employer must have 100 or more employees on at least 50% of its regular business days in the previous calendar year
Count all employees (not just Medicare-eligible employees), and include part-time employees

Medicare Secondary Payer Rules

Employer’s Plan Pays Primary Generally, employers are prohibited from considering Medicare entitlement of a current employee or spouse or dependent.

Active Coverage Individuals Covered Based on “Current Employment Status”

The Employer-Sponsored Plan Pays Primary

For active employees and spouses Medicare will pay secondary
MSP rules also require that the GHP provide same benefits under same conditions to age 65+ employees

COBRA or Retiree Coverage MSP rules Do Not Apply

Medicare Pays Primary

The employer-sponsored plan will pay secondary
Retirees and COBRA qualified beneficiaries are not receiving coverage based on “current employment status,” so MSP rules do not apply
In most plans, the coordination of benefits provision will provide that Medicare pays primary for COBRA or retiree coverage
Plans can assume the Medicare payment rate and pay only as secondary coverage for any COBRA participant eligible for Medicare—even if not enrolled in Medicare.

Spouses & Domestic Partners

MSP Rules Apply to Active Employee’s Spouse: Employee’s spouse is enrolled in Medicare and the employee’s health plan – Medicare will pay secondary.

MSP Rules Do NOT Apply to Active Employee’s Domestic Partner: Employee covers a domestic partner enrolled in Medicare – the employer sponsored GHP can pay secondary (Medicare pays primary). For Medicare-eligible domestic
partners, GHP will often provide that it pay secondary to Medicare (even if DP is not enrolled in Medicare).

COBRA & Medicare

COBRA Coverage:

Can terminate early based on Medicare “Entitlement”
Medicare “Entitlement” means Medicare enrollment
Mere Medicare eligibility (e.g., reaching age 65) is not Medicare entitlement
Thus, merely being eligible to enroll in Medicare cannot terminate COBRA rights

Cannot Cancel Coverage Upon Medicare Enrollment

Loss of coverage caused by enrollment in Medicare technically is a COBRA qualifying event
For most employers (generally 20+ EEs), the MSP rules prohibit employers from taking into account Medicare enrollment
Therefore, an employer-sponsored group health plan generally cannot provide for loss of eligibility upon Medicare enrollment ……
Which means no COBRA qualifying event because no loss of coverage

Medicare Enrollment Also Not a Second Qualifying Event

Certain events can extend the COBRA maximum coverage period for spouses and dependents from 18 months to 36 months, however because Medicare enrollment does not cause loss of coverage, it cannot be the reason for a second qualifying event.

Pre-QE Medicare Enrollment Extension

COBRA Extension Applies to Two Qualifying Events

Termination of Employment; or
Reduction in Hours

COBRA Extension Applies Only to Spouse and Children (No extension for the employee). Medicare enrollment must occur prior to qualifying event.

Extension duration depends on when employee enrolled in Medicare

COBRA maximum coverage period is the later of:
36 months from the date the employee enrolled in Medicare; or
18 months from the date of termination or reduction in hours.

Medicare & COBRA for Retirees

Updates to look for in the Department of Labor’s Model COBRA Notices:

Medicare Will Pay Primary Concern: COBRA Coverage Can Assume Primary Medicare Payment Even if Not Enrolled in Medicare
The Eight-Month Medicare Special Enrollment Period is Not Extended by COBRA Enrollment
COBRA Coverage Does Not Qualify to Avoid Part B Late Enrollment Penalties
Early Termination of COBRA Upon Enrollment in Medicare After COBRA Election