Ask the Experts: Can You Offer Incentives for Switching to Medicare?

Question:  Can we offer employees who are Medicare eligible an incentive in a supplemental payment to move from our group health plan to Medicare? We have two Medicare-eligible employees currently on our group health plan and two more that will become Medicare-eligible this year. We are told that this drives up our premium costs by as much as 10%.  We employ more than 20 employees.

Answer:

In answering this question, we thought that it might be useful to first explain who the Medicare Secondary Payer (MSP) rules apply to.  The MSP rules relating to “group health plans covering the working aged, those 65 or older” apply to employers employing 20 or more employees. The MSP rules relating to disability apply to group health plans sponsored by employers employing 100 or more employees (referred to as “large group health plans”). The MSP rules relating to end-stage renal disease apply to employer-sponsored group health plans without regard to the employer size.

The following information comes directly from the Center for Centers for Medicare & Medicaid Services to answer your specific question:

“An employer or other entity is prohibited from offering Medicare beneficiaries financial or other benefits as incentives not to enroll in or to terminate enrollment in a Group Health Plan or Large Group Health Plan that is or would be primary to Medicare. This prohibition precludes the offering of benefits to Medicare beneficiaries that are alternatives to the employer’s primary plan (e.g., prescription drugs) unless the beneficiary has primary coverage other than Medicare. An example would be primary plan coverage through his/her own or a spouse’s employer. This rule applies even if the payments or benefits are offered to all other individuals who are eligible for coverage under the plan. It is a violation of the Medicare law every time a prohibited offer is made regardless of whether it is oral or in writing. Any entity that violates the prohibition is subject to a civil money penalty of up to $5,000 for each violation.”

Source: https://www.cms.gov/manuals/downloads/msp105c01.pdf

Additionally, the Older Workers Benefit Protection Act of 1990 (OWBPA) amended the Age Discrimination in Employment Act of 1967 to specifically prohibit employers from denying benefits to older employees. Congress recognized that the cost of providing certain benefits to older workers is greater than the cost of providing those same benefits to younger workers, and that those greater costs would create a disincentive to hire older workers. Therefore, in limited circumstances, an employer may be permitted to reduce benefits based on age, as long as the cost of providing the reduced benefits to older workers is the same as the cost of providing benefits to younger workers.