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Avoiding Traps in Coordinating Medicare and Employer Health Coverage

Medicare and Your Employer Health Coverage: Too Much of a Good Thing?

More Americans are working past 65 and continue to have employer-sponsored health insurance. However, the intersection of Medicare and employer coverage has a number of traps for the unwary and some of these traps come with real financial consequences. This makes it more important than ever that you (and your employer) understand the complex rules for starting coverage under Medicare. This blog post will identify some of the traps in these rules.

Medicare Part A and HSAs.

If you (or your spouse) has paid Medicare taxes for at least ten years, you do not pay monthly premiums for Medicare Part A (hospital) coverage. Because Part A does not require premiums, most workers start Part A at 65 even if actively employed.

•      Trap 1: Once Part A starts, you are no longer eligible to contribute to a Health Savings Account (HSA). So, if that HSA deduction is important to you, then you need to make sure you do not enroll in Part A at age 65.

•      Trap 2: Once you sign up to receive Social Security benefits, you are also (automatically) applying for Part A coverage. So, the only way to defer Part A coverage (and retain that HSA contribution) is to also defer commencement of your Social Security benefits.

•      Trap 3: Once you do enroll in Part A and you are over age 65, your Part A enrollment is effective retroactively for 6 months. So, you should stop making HSA contributions 6 months before you start your Medicare Part A coverage.

Medicare Part B and Late Enrollment Penalties.

Medicare Part B (physicians and outpatient) coverage does require a monthly premium and so, if you have other coverage, it may be tempting to defer Part B until the other coverage stops. But a warning – if you do not enroll in Part B when you first become eligible you may be subject to a significant penalty. However, there is no penalty if you defer Part B and you have certain (but not all) other health coverage.

As an FYI, the penalty is 10% of your Medicare premium for every full 12-month period when you were eligible for Part B but didn’t enroll. For example, if you waited for three years to enroll, your penalty could be 30% of the premium, so when you enroll in Part B you would pay your Part B monthly premium, plus 30%. Here is the kicker – you pay this penalty for as long as you have Part B (in other words, for the rest of your life after you retire).

Here are some of the traps:

•      Trap 4: The late enrollment penalty does not apply if you have coverage from your employer (or your spouse’s employer) and that coverage is because of current employment. So, if you have COBRA coverage or retiree health coverage, you should not delay your Part B enrollment.

•      Trap 5: The late enrollment penalty does not apply if you have employer coverage only if the employer has at least 20 employees. So, you should not delay Part B enrollment if your coverage is from a smaller employer.

Working past 65 can have significant personal and financial rewards and retaining your employer health coverage after you reach age 65 can be a real benefit. However, Medicare’s rules for coordinating Medicare eligibility and employer coverage contain a number of traps for the unwary. Avoiding these traps can help make sure you fully enjoy the benefits of working after 65.

Congress Tries New Remedy

On April 16 President Obama signed The Medicare and CHIP Reauthorization Act (“MACRA”). The focus of the law is to change how physicians are reimbursed under Medicare, but MACRA contains a number of provisions that may have far-reaching consequences for all of the “stakeholders” in Medicare—especially for consumers and their physicians.

Most importantly, MACRA changes more than how much physicians are paid—it shifts how they are paid. Under MACRA, annual increases (and possible cuts) in physician reimbursements will be based on the physicians’ performance under standards to be established in the coming years. So, MACRA continues Medicare’s movement away from the 1960’s mindset of compensating physicians for volume—and represents an attempt to use economic incentives (rather than government mandates) to modify physicians’ behaviors.

As with any changes to Medicare, the impact of MACRA will be studied and debated for years to come. The prior system—which required an annual scramble to avoid dramatic reductions in physician reimbursements—was not sustainable. We now get to see whether MACRA can live up to the expectations of Congress and the needs of Medicare beneficiaries.

Here is an overview of the key provisions of MACRA:

MACRA repeals the (much reviled) formula for updating payments from Medicare to physicians. The old formula (known as the Sustainable Growth Rate, or “SGR”) linked physician payments to the overall growth of Medicare costs and required annual acts of Congress to prevent unacceptable cuts to physician payments. MACRA replaces the SGR with a formula that links increases in physician reimbursements to a new incentive system. The new system will provide financial incentives to physicians for:

o Quality of care (including clinical care, safety, coordination of care, patient and caregiver experience, and overall health and prevention);
o The resources used to provide care;
o Use of electronic health records; and
o Participation in different payment structures.

Physicians will be graded on a “curve”—those physicians who score better on the new incentive system will receive higher annual increases (and those who score worse will receive lower—or even “negative” increases) and data under this new system will be publicly available.

Specific measures will be developed over the next few years.

To help finance MACRA, the law also changes the formula for determining the amount of premium (for Medicare Parts B and D) paid by higher income individuals. The most significant increase affects the premium paid by Medicare beneficiaries with annual income over $160,000.

MACRA prohibits Medicare Supplement plans from covering the deductible amount (currently $147) under Medicare Part B, which affects Supplement Plans C and F. This prohibition goes into effect in 2020 and affects only policies sold to individuals turning 65 on or after January 1, 2020.

MACRA prohibits government auditors from applying the “two-midnight rule” until after September 30, 2015. Under this rule, hospital admissions that did not span two-midnights were subject to extra scrutiny by government auditors. This rule has raised concerned that patients are (inappropriately) labeled as under “observation.” See our April 8 blog post for a description of the two-midnight rule—and the problems associated with it.

MACRA also extends the Children’s Health Insurance Program (“CHIP”) for two years. CHIP provides funds to states for health insurance for families with low income (but who do not qualify for Medicare). The CHIP extension has nothing to do with Medicare, but was a part of the political horse-trading that was needed to obtain bipartisan support for MACRA.

Growing Consumer Consciousness About Retirement

In the world of “entitlement” programs, the youngest Boomers just turning 50-years-old this year believe that social security will not be available for them nor will Medicare as we know it. While it would be nice to have research to support this, suffice it to say, survey 50-somethings and they’ll confirm this statement!

Many Boomers rarely have the opportunity to work for the same employer long enough to accrue some benefits into retirement. In addition, the current employee benefit model, highlighted by pensions and retiree health insurance, is in flux. Allen Steinberg, JD and chief legal officer of Retiree Health Choices, detailed the pension pendulum in this blog post recently.

Boomer/Consumer Consciousness

The rocky rollout of the Affordable Healthcare Act under the banner of Healthcare.gov has influenced everyone in the country regardless of gender, political, religious, ethnic, or other persuasion. Right now it is a calamity for the country; yet, it is also an opportunity for organizations to recognize the need for clarity.

Many consumers, particularly boomers, are well informed and educated about an array of products and services, insurance plans and options. However, the transition to Medicare remains a gap – consumers are not aware of the complexity until they have to deal with it. Read the rest of this entry »

What To Know About Medicare Supplement Plans

Open enrollment for Medicare insurance is right now.

Everyone eligible for Medicare (usually 65-years-old) automatically gets Part A and needs to sign up for Part B.

Because Parts A and B don’t cover everything, people can elect to buy supplemental coverage, often called Medicare Supplement insurance.

All of the Medicare Supplement plans, also called Medigap, are standardized in almost every state; yet, there are many options to consider when purchasing additional Medicare insurance from private insurers. Read the rest of this entry »

Five Tips For Boomers Transitioning To Medicare

More 65-year-old Americans are electing to stay in the workforce, and if they’re fortunate to have benefits that accompany full-time employment, then full dependence on Medicare can be postponed.

Most workers, however, are not so lucky when it comes to employer-provided health care. When an employee hits 65-years-old, the customary retirement age, then companies prefer health insurance benefits to be paid by Medicare.

Anyone still working through their ‘60s, needs to be fully aware of details about group health insurance coverage and Medicare plans. Often, it’s a gray area; there isn’t a benefits department in a workplace to assist 64-year-olds with insurance choices or which path to take and when.

To help people navigate the many choices Medicare insurance requires, which often become complex and confusing, here are some tips to consider: Read the rest of this entry »

Why Boomers Should Use EasyMedicareChoices.com

There’s a new consumer website called EasyMedicareChoices.com, and it’s for:

  • Seniors approaching 65-years-old
  • Those beyond that age
  • Caregivers of elderly who need help with their Medicare insurance

The site was designed and developed by Retiree Health Choices, a Chicago technology company interested in helping retirees make more informed decisions about their health care. Read the rest of this entry »

Retiree Health Choices Plans To Launch Personal Health Calculator

When Retiree Health Choices’ new site EasyMedicareChoices.com launches in the next several months, there will be an innovative personal health calculator driving the engine of that website.

What that means is consumers interested in comparing Medicare Supplement plans can use the personal health calculator to better understand total estimated annual cost of plans, premiums and more.

Retiree Health Choices, a Chicago-based technology company, is creating new online tools to help Medicare-eligible adults make more informed decisions about their future health care and insurance needs.

Read the rest of this entry »

The Medicare Lexicon: An Introduction

When you compare Medicare insurance with that of health insurance for the working population, it’s an alphabet soup.
Most in the workplace have the benefit of human resources assistance to decipher insurance plans, whereas retirees navigating Medicare often have to go it alone.
Some of the key decisions retirees need to consider when preparing to buy Medicare include:
• How much is it going to cost each month?
• What is my out-of-pocket exposure?
• What do I pay when seeing a doctor?
• Where do I have to go to get my care? Read the rest of this entry »