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Medicare Premium Reimbursement Programs

Medicare Premium Reimbursement Programs

November 05, 2018

by Claudia Tran

Although the Affordable Care Act (ACA) has been in place now for several years, many employers are still confused about certain aspects of the law. One area of confusion is reimbursement for premium payments under Medicare. If your company is an employer with 19 or fewer employees, it is eligible to provide Medicare Reimbursements to Medicare-enrolled employees as long as the arrangement is integrated with your group health plan.

An "employer payment plan" is an arrangement in which an employer pays or reimburses an employee for some or all of the premiums for an individual health insurance policy (i.e., not a group plan). Generally, “employer payment plans” that reimburse active employees for premiums under Medicare Parts B or D are considered by the IRS as group health plans that fail to satisfy certain ACA requirements.

However, the IRS, in Notice 2015-17, explained that these arrangements can be integrated with other group health plans. A reimbursement program will be considered integrated if all of the following are met:

  1. The employer always offers a minimum value plan with at least 60% actuarial value that covers the physician and hospital plan, regardless of whether or not the Medicare-eligible employee elects the group plan or Medicare;
  2. The employee who receives premium payments is actually enrolled in Medicare Parts A and B;
  3. The program provides that premium payments are only available to employees who are enrolled in Medicare Part A and either Part B or D; and
  4. Premium payment or reimbursement is only for Medicare Part B or D and excepted benefits, including Medigap premiums.

If these conditions are satisfied, the employer's Medicare reimbursement arrangement will not be considered an impermissible employer payment plan and will not be subject to excise tax penalties for any failure to satisfy the ACA market reforms. However, it is important to note that while such arrangements may be allowed under Notice 2015-17, they may violate Medicare’s secondary payer rules which prohibit employers from offering financial or other incentives to employees to decline employer-provided group health coverage, unless the small-employer exception applies. 

Employers with 20 or more employees could not establish such an arrangement without violating rules for age-based Medicare (and no employer (regardless of size) could offer this arrangement to an employee entitled to Medicare due to end-stage renal disease (ESRD) during the ESRD coordination period). Thus, Medicare Reimbursement options essentially are limited to employers with 19 or fewer employees.

Note also that Medicare eligible employees should still have the option to enroll in the offered group health plan in addition to Medicare. If they elect to do so, Medicare will be the primary payer and the group health plan will be the secondary payer.

Due to the strict $100 per employee per day penalty for impermissible inducement to decline group coverage, if you are a small employer with 19 or less employees who is interested in integrating Medicare with your group health plan, it is strongly encouraged to speak with an attorney first before altering any health insurance policies and practices.

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