Managing Medicare-Eligible Employee Health Benefits
More Employees are Now Working Past Age 65
The world of work has evolved over the last several years and many employees are choosing to work past age 65. In the past, most people would have been retired at or before turning age 65. However, some now choose to continue their careers beyond age 65.
For the vast majority of HR departments, there is a lack of understand that goes with having one or more employees age 65 or older due to the lack of understanding around Medicare. Its important for employers to build knowledge about Medicare with their HR benefits and payroll teams. You must be mindful that nothing is done that unfairly limits the ability of such employees from participating in all benefits programs, especially group health insurance and, as an extension of that, health savings accounts (HSA).
Medicare Eligible Doesn't Mean Medicare Enrolled
One area that may cause the greatest amount of confusion for those administering the health plan is the eligibility of a Medicare-eligible employee to remain on the medical plan and continue receiving company contributions to an HSA and to make payroll contributions to an HSA.
As long as an Medicare-eligible employee is not enrolled in any Medicare plans, they may continue to receive company contributions to their HSA and also make pre-tax contributions to their HSA.
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NOTE 1: Unless an active employee is receiving Social Security benefits at age 65, they will not be automatically enrolled in Medicare when they turn age 65. They must actively enroll in Medicare when they are ready to make the transition.
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NOTE 2: An active employee may be enrolled in their employer's group health plan as well as Medicare Part A and/or Part B and/or Part D. However, in such a circumstance, the group health plan remains primary coverage according to Medicare Secondary Payer rules (except for a company with less than 20 employees).
- NOTE 3: An employer may not offer incentives to a Medicare-eligible employee to choose Medicare over the employer's group health plan. Likewise, it would probably be viewed unfavorably if an employer hindered an employee's ability to fully participate in a group health plan based on being age 65 or older and, as an extension of that, receive and make contributions to an HSA.
Limiting HSA Contributions by Payroll Deduction for Medicare Eligible Employees May Be Easier for Payroll, But is it Compliant?
One of the issues that arise from time to time with Medicare-eligible employees when they get ready to retire is the timing of HSA contributions. Given that Medicare Part A coverage is retroactive up to 6 months or to age 65 (whichever is shorter), there must be sufficient time between the time the employer and employee HSA contributions end and when the employee will become effective on Medicare.
Too often, an employee will not be educated on this fact until they approach their date of retirement. As a result, they will ask payroll to reverse the HSA payroll deductions that are in excess of the prorated amount they are allowed to contribute for the year (since there would be an excise tax on such excess contributions).
For this reason, some companies have chosen to eliminate HSA contributions by payroll deduction for employees over age 65. But is such a policy compliant? One of the most important HR principles is that everyone should be treated in a like manner. To deny someone the convenience and the tax-favored advantages of payroll deduction based on their age doesn't seem to be a correct approach. Some additional questions to consider.
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Does the administrative "burden" of reversing payroll deductions on an occasional basis warrant denying the same services to those over age 65 as enjoyed by all other employees?
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Has HR helped to educate such individuals about the timing for stopping HSA contributions?
- What does your legal counsel recommend? Can they defend such limitations in court?
The Risks for Convenience Over Compliance
Many times, the potential ramifications of such process decisions aren't properly vetted. I wonder if there is basis for an employee to contend discrimination if they were denied HSA contributions from an employer or through payroll if they were 65 or older and still on the group health plan. Furthermore, if such a practice has been in place for several years, are former employees owed funds due to such actions? All important considerations if you are currently administering your plan in this manner or its being considered.
Medicare Education is an Important Part of Financial Wellness-We Can Help
Whether its for employees in general or for your HR staff, understanding Medicare is an important element of any financial wellness initiative.
Please contact us using the form above if you need help with employee presentations about Medicare (no expense to you, virtual or in-person locally) and/or provide consulting on ways to build processes to help manage benefits for active employees age 65 or over.