William Freedman |
As recently as 2016, we could have a debate about whether an employee, upon turning 65 and having no immediate retirement plans, should continue with a company-sponsored healthcare plan or switch to Medicare. But it’s not up for debate anymore. Medicare wins. With the August 29 announcement that Medicare will negotiate with pharmaceutical companies on drug prices, Medicare got even better. And as it became clearer to policy makers that Individual Coverage Health Reimbursement Agreement, or ICHRAs, can and do apply to Medicare costs, it’s practically a no-brainer now.
Still, the decision must remain the individual employee’s. With that in mind, let’s discuss what goes into that decision
On the first day of the month in which you turn 65, you become eligible for Medicare.
This qualifies you for Medicare Part A, which covers hospitalization costs. There are no premiums, providing that you’ve paid into the Medicare fund for a total of 10 years or more. There is, however, a deductible – currently $1,600 – and copays.
That’s distinct from Part B, which covers doctors’ visits. This does require paying a premium, currently $164.90 for most people, as well as copayments.
Parts A and B together are often called “Original Medicare”.
Part C, also called Medicare Advantage, is a private-sector alternative to Medicare offered by managed-care companies. These plans typically offer a range of coverages – dental, hearing and vision, for example – not covered by Original Medicare, but you would need to stay within the plan’s network of doctors and hospitals. Part C, then, is a substitute for Parts A and B. And because Medicare Advantage plans generally offer lower co-pays than Original Medicare, participants often have lower out-of-pocket expenses. It also provides prescription coverage.
Part D, by the way, is the prescription plan that accompanies Original Medicare, so there’s no need to pay for Part D if you already have Part C. While Part D plans are designed to work hand-in-glove with Original Medicare, they are offered by private insurers and so they vary in exactly what they offer. As a result, they differ in price. Depending on what medications you take now, what you consider the likelihood of needing more medications in the future, your willingness to accept generic substitutes and your degree of concern about how much you might need to pay for especially high-cost drugs, you might rationally select one Part D plan over another.
Medicare Advantage, though, is not your only option for controlling healthcare costs as a U.S. senior. There’s also Medicare Supplement Insurance, also called Medigap. This extra insurance mitigates your exposure to copays, coinsurance and deductible expenses. You can only get Medigap coverage if you’re on Original Medicare. While they are offered by private insurers, they have to conform precisely to one of 10 varieties. These differ in their coverage of skilled nursing care, foreign travel, out-of-pocket limits and certain Part B blind spots.
Individual Coverage Health Reimbursement Arrangements, or ICHRAs, allow firms of any size to offer employees tax-free contributions to cover up to 100% of their individual health insurance premiums as well as other eligible medical expenses.
Instead of offering insurance policies directly, companies advise their employees to select the plan which best suits their needs. Premiums are then reduced by employer reimbursement rather than an advance premium tax credit.
But even though ICHRAs were designed with the plans offered on government-sponsored exchanges in mind, they work perfectly well with Medicare too.
That’s a good thing, because 30% of people ages 65 to 74 still work, according to the Labor Department.
So a company can set up ICHRAs to pay any Medicare premiums, whether they cover Original Medicare, Part C, Part D or Medigap. It can even reimburse for deductibles and copays, just like with Obamacare plans.
Also, if you’re running a firm that has fewer than 20 employees and currently offer a traditional, company-sponsored plan, then your 65-year-old birthday celebrant has no choice but to drop it and go on Medicare. (They might be able to retain their old plan as secondary coverage, but we’re veering from the topic.)
There are, however, a few caveats that need to be considered before offering an ICHRA for Medicare coverage.
First of all, you can’t just kick people off a company-sponsored plan just for turning 65, nor can you suddenly roll back their ICHRA. It’s a good idea for them to select Medicare, but you can’t force them. You can’t coerce them. You can’t even suggest it to them. They have to make up their own minds.
Secondly, you can’t offer an ICHRA to a class of employees that is also being offered a legacy plan. There are 11 types of ICHRA classes, which we discussed previously, and we won’t list them here. Suffice to say, “Old Timers” isn’t one. You’ll have to find a relevant class and include enough other people to satisfy the minimum. Otherwise, you could be running into an age discrimination buzzsaw.
Anti-duplication provision: It’s illegal to knowingly sell or issue a qualified health plan to a Medicare beneficiary, according to the Social Security Act. But if an issuer learns an individual is a Medicare beneficiary prior to the individual’s coverage effective date, the issuer may cancel the enrollment.
Equal benefits rule: Employer can’t insist that you subscribe to a particular health insurance option – such as a legacy plan or an ICHRA – as a condition of employment or use it as mechanism to coerce an employee into retirement. Still, an employer doesn’t violate it by permitting certain benefits to be provided by Medicare. According to Cornell Law School, “the availability of certain benefits to an older employee under Medicare will not justify denying an older employee a benefit which is provided to younger employees and is not provided to the older employee by Medicare.”
Medicare Secondary Payer (MSP) rule: This comes into play when a Medicare participant is also enrolled in a company-sponsored plan or an ICHRA. The insurance that pays first, called the primary payer, pays up to the limits of its coverage. Then the other one, called the secondary payer or MSP, only pays if there are costs the primary insurer didn't cover. If the company has 20 or more employees, it must offer current 65+ employees the same health benefits under the same conditions as their younger colleagues. For these companies, the group health plan or ICHRA pays first, and Medicare is the MSP. These regulations also apply to smaller firms that are part of a multi-employer group plan. Otherwise, Medicare is the primary payer and the employee-sponsored plan or ICHRA is the MSP for firms with fewer than 20 employees.
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