Americans are living longer and retiring later than ever. The Bureau of Labor Statistics and Census’ estimates show that in 2020, 19.5% of Americans 65 or older were working or looking for work, so there’s a good chance a solid portion of your workforce is over 65—or will be soon. By default, it also means that a lot of your workforce is eligible for Medicare.
Medicare has traditionally added a layer of complexity to employer-sponsored health benefits. Because employers are strictly prohibited from offering incentives to Medicare-aged employees to enroll in Medicare instead of a group health plan, employees often end up using the latter as their primary coverage. This double coverage, however, is likely unnecessary for employees and a potential compliance burden to their employer.
Additionally, an older population can cause employers to experience higher premium rates as insurance companies compensate for the additional risk.
There’s another option, though, that’s a win for both companies and their Medicare-eligible employees: an Individual Coverage Health Reimbursement Arrangement (ICHRA). An ICHRA allows businesses to pay for individual insurance premiums, which include Medicare premiums, for any class of employee who is not eligible for a group health plan if one is being offered by the employer.
Keep reading to learn more about ICHRA and Medicare, especially as it pertains to mid-market and large employers.
First, let's start with some background.
What is Medicare?
Medicare is a federal health insurance program primarily covering individuals 65 or older and those with specific disabilities or chronic conditions. Medicare is funded by payroll taxes and premiums paid by beneficiaries, which are managed by the Centers for Medicare and Medicaid Services (CMS).
What is an ICHRA?
ICHRAs allow employers to give their employees a set amount of money each month to purchase health insurance coverage from any carrier and plan available in their area on the individual market. This type of benefit is more flexible and cost-effective than traditional group health insurance plans because it allows employees to choose the coverage that best meets their individual needs.
How does an ICHRA work with Medicare?
Starting in 2020, an employer of any size can establish an HRA in order to reimburse premiums for major medical insurance coverage purchased on the individual market. Importantly, in addition to individual coverage, ICHRA’s can integrate with Medicare (Parts A and B or C).
An employer that provides a traditional group health plan would meet two strict prohibitions should they offer or incentivize an employee who has the group health plan through their active employment to leave the group health plan in favor of Medicare.
The first prohibition is Medicare’s anti-duplication rule, which prohibits the sale of individual medical coverage to an individual enrolled in Medicare. The anti-duplication rule would appear to prevent Medicare-eligible employees from participating in an ICHRA because such employees would be unable to purchase individual medical coverage. To resolve this conflict, the final ICHRA regulations treat Medicare as qualifying individual medical coverage. Thus, employees must be allowed to qualify for the ICHRA by enrolling in Medicare.
Second, employers subject to the MSP rules are prohibited from offering incentives to active employees to enroll in Medicare instead of employer-sponsored group health plan coverage. For employers subject to the MSP rules, the ICHRA regulations make the following clarifications:
- An employer may offer an ICHRA to a class of employees without violating the MSP rules, even though some employees in the class are eligible for or enrolled in Medicare.
- Reimbursement of Medicare or Medicare supplemental premiums by the ICHRA is not considered an impermissible financial incentive under the MSP rules.
- However, the ICHRA may not limit reimbursement of medical expenses to expenses not covered by Medicare.
Therefore, an employer may establish an ICHRA to reimburse premiums for major medical insurance coverage purchased on the individual market, or premiums for Medicare (Parts A and B, or Part C).
What are the advantages of offering Medicare-eligible employees the ICHRA solution?
Increased employee satisfaction
By participating in an ICHRA, Medicare-eligible employees avoid being enrolled in—and paying for more healthcare than they may need. By integrating with Medicare, an ICHRA allows employees to have their Medicare expenses, such as premiums reimbursed, which could save employee thousands of dollars each year.
Employers who have Medicare eligible employees can save money by implementing an ICHRA. First, there is the reduced cost of reimbursing Medicare premiums which are typically much smaller than the group health plan premiums the employer provides and second, they can avoid the claims risk that comes from enrolling an older population into a group health plan.
Reduced compliance burden
With an ICHRA, a plan sponsor can avoid the burdensome Medicare Secondary Payor (Section 111) reporting, as only HRA coverage that reflects an annual benefit value of $5,000 or more that is available to a specific Medicare beneficiary for medical claims needs to be reported.
Large employers considering offering an ICHRA to their employees should be aware of the potential implications for Medicare-eligible employees. Ensure benefits communications are clear, so employees understand if they’re eligible and are aware of their options. SureCo provides professional consulting services to mid- and large-size employers who offer an ICHRA to their workforce. It’s important that those employees who are Medicare eligible (or who will become so by the effective date) are identified and receive the support they need to coordinate their benefits between the two programs.
Check out our new guide on SureCo’s ICHRA solution.