Medicare versus Obamacare versus Other Insurance…Know Your Options!
A recent news article (Waters, Jennifer. “Don’t Confuse Medicare with Obamacare.” Wall Street Journal 7 Sept. 2013) cautioned readers not to confuse the annual Medicare open enrollment period (aka “open season”) with the upcoming Affordable Care Act Marketplace enrollment period. Since the two programs will have overlapping enrollment periods during the last quarter of the year, there is bound to be confusion, if not “opportunistic hustlers” looking to exploit unsuspecting enrollees. As Centers for Medicare and Medicaid Services (CMS) spokesman – Richard Olague – indicated in the article – “We want to reassure Medicare beneficiaries that they are already covered, that their benefits aren’t changing and that the Marketplace doesn’t require them to do anything different. Specifically, they do not have to change their Medicare coverage or enroll in any Marketplace plan.” Just what Medicare beneficiaries didn’t need – more confusion!
This article got me thinking about other aspects of Medicare that confuse, confound, and challenge both program beneficiaries, and employers/human resource managers alike. As an Employee Benefits Broker/Consultant, I answer a lot of questions relating to Medicare and its impact on employer sponsored/offered health insurance. So this week’s post is dedicated to clarifying, and perhaps informing, on some key aspects of the transecting of Medicare (and its various parts) and employer sponsored health insurance.
Point #1 – Medicare eligible employees have a choice for coverage. Which is better?
I always remind and encourage benefits eligible employees to evaluate ALL of their health insurance coverage options (e.g., employer coverage, spouse’s employer coverage, individual major medical, Medicare, Tri-Care, VA, etc.), and compare coverage AND out of pocket costs. This can be a daunting task, and may be an opportunity for employers to conduct thorough “employee engagement” sessions to better acquaint employees with their coverage options. In some cases, the coverage available from an employee’s employer is NOT the best option. And for many Medicare beneficiaries, the 4-part Medicare coverage package (i.e., Parts A, B, D, and a Medigap policy) is a far superior alternative to the employer offering. Regrettably, many Medicare eligible employees feel a sense of entitlement to their employer’s benefit offering, even if it’s not their best option. In many cases, the 4-Part Medicare coverage package provides vastly superior coverage relative to the available employer offering. In fact this package can provide a nearly 100% coverage benefit design (with the exception of the copays associated with prescription drugs on Part D), compared with the ever growing high deductible, high out pocket plan that the employer may be offering/funding. And in some cases, the cost of coverage may be less for the Medicare package versus the available employer plan offering!
Point #2 – How does the Medicare enrollment “window of eligibility” work?
Medicare beneficiaries actually have a variety of enrollment periods within which they can enroll in Medicare (e.g., initial, open, and special). Unless otherwise requested, an eligible individual is automatically enrolled in Medicare Part A (hospital/facility only coverage), effective the 1stof the month they turn 65. During the three-month period prior to the birth month, the birth month, and the three-month period following the birth month, beneficiaries can evaluate/enroll in the other three parts, without providing any evidence of insurability. If a Medicare beneficiary is working and has employer sponsored health coverage as of the time of initial Medicare eligibility, their “eligibility window” is preserved until such time as they stop working and/or otherwise lose their employer coverage.
Point #3 – What are the other three parts of the 4-part, Medicare package?
1. Part B – coverage for physician provided care, ambulance, mental health, durable medical equipment; income means tested, but generally costing around $105 per month;
2. Part D – prescription drug coverage, generally requiring copays associated with various tiers of drugs – preferred generic, non-preferred generic, preferred brand, non-preferred brand, specialty (and sometimes an up front deductible); costing in the range of $35 – $50 per month, and also income means affected; and finally;
3. Medigap/Medicare Supplement coverage, which provides coverage for the various “gaps” or out of pocket requirements, associated with Parts A and B. These policies are strictly regulated by the federal government, and provide a range of coverage options at various premium levels. Some plans can be purchased for as little as $50 per month.
Since Part A is funded through a payroll related tax that is collected during the beneficiary’s working life, the approximate sum total cost for the 4-part Medicare package can be around $200 per month. And again, in many cases, such coverage provides far superior benefits than an alternative employer offering.
Point #4 – Does a Medicare eligible employee have to make their decision within their initial 7-month enrollment period?
If a Medicare eligible employee opts to remain on their employer’s group health plan, their guaranteed issue enrollment window moves with them in time. In effect, as long as the Medicare beneficiary remains enrolled in their employers plan, they do NOT forfeit their eligibility to enroll in Parts B and D. More importantly, they retain their right to purchase a Medigap policy on a guaranteed issue basis, without having to provide evidence of insurability, provided they elect Part B within 8 months of the loss/termination of employer coverage, and enroll in a Medigap policy within 63 days of the loss of employer coverage.
Point #5 – Is there any down side to remaining on employer coverage versus electing the Medicare package at initial eligibility?
Aside from comparing both the cost and coverage, and making the best decision, there are a couple of very important considerations facing employees that have so called consumer driven health (CDH) plan coverage. In particular, CDH plans that are coupled with Health Savings Accounts (HSAs) pose unique considerations for Medicare beneficiaries. And those are:
* If your employer based plan is considered “non-creditable” for Medicare Part D purposes, you may incur a premium penalty associated with future, Medicare Part D coverage. Some, but not necessarily all, of the higher deductible plans coupled with HSAs are considered non-creditable. In short, if your employer plan is considered non-creditable, and you elect to remain enrolled in it instead of enrolling in Part D, you may incur a premium penalty of 1% of the cost of Medicare Part D premium, times the number of months you had non-creditable drug coverage. Each October, employers are required to provide eligible plan participants that are Medicare eligible with a notice that indicates whether the offered plan is “creditable” or “non-creditable”. This is a very important indication to Medicare eligible employees, and should be given careful and thorough consideration at enrollment time; and
* Once an employee is enrolled in Medicare Part A (as previously mentioned, this generally happens in conjunction with turning 65, with Part A coverage taking effect the 1st of the month this occurs), they can no longer contribute to their HSA. In addition, the employer can no longer contribute tax- preferred funds to the employee’s HSA. Without the ability to contribute to their HSA, the resultant employer based CDH plan is essentially a high deductible plan with no funding offset. It is possible (although not easy) to dis-enroll in Medicare Part A by contacting the Social Security Administration and making the request.
So an important clarification, which is often mis-communicated – turning age 65 does not, in and of itself, disqualify an individual from making and accepting HSA contributions. But rather, it is enrollment in Medicare Part A that creates the disqualification.
Each of these considerations is of particular importance to Medicare eligible employees who have CDH coverage through their employer.
Hopefully, this weeks post helps clarify some of the many confusing issues facing Medicare beneficiaries (including a brand new one associated with the Obamacare Marketplaces!). To summarize, beneficiaries are advised to understand all their coverage options, including cost, coverage, penalties, and timing.