For Many Employees, Medicare May Be Better Than the Employer Health Plan

One of Medicare’s biggest advantages is access to care.

Employees enrolled in Original Medicare can generally receive care from any physician or hospital in the country that accepts Medicare. They typically do not have to stay within a narrow local network, and referrals are generally not required to see specialists.

That can be a meaningful advantage for employees who travel, spend part of the year in another state or need care from specialists outside the employer plan’s service area. It can also be helpful for employees who want access to major medical centers or nationally recognized providers.

Medicare may also provide more predictable costs.

An employee who stays on the employer plan may have a relatively low payroll deduction but still face a large deductible, coinsurance and several thousand dollars of potential out-of-pocket expenses. That employee may not realize how much financial exposure remains until a serious medical condition occurs.

An employee who enrolls in Original Medicare may choose to add a Medicare Supplement plan and separate prescription drug coverage. Another employee may prefer a Medicare Advantage plan. Depending on the employee’s health needs and the coverage selected, either option may create more manageable and predictable healthcare expenses.

The key is to compare the total cost of coverage, not just the monthly premium.

Employees need to consider payroll deductions, Medicare premiums, deductibles, copayments, coinsurance, prescription costs and maximum out-of-pocket exposure. They should also evaluate the cost of maintaining coverage for a younger spouse or dependent children.

A plan with the lowest monthly premium is not always the plan with the lowest total cost.

Employer-sponsored coverage is tied to employment. Medicare is not.

That becomes especially important for employees who are preparing to retire, reduce their hours, relocate or change jobs. Medicare coverage does not depend on the employer renewing its plan, maintaining the same insurance carrier or continuing to offer the same network.

For many employees, that stability has real value.

An employee may be comfortable with the employer plan today, but the plan could change significantly at the next renewal. Deductibles could increase, provider networks could change and prescription drug coverage could become more restrictive.

Medicare can provide a more permanent coverage foundation that follows the employee into retirement.

There is no single answer that works for every employee.

Original Medicare does not cover everything. It generally does not include routine dental, vision or hearing benefits, and it does not provide comprehensive long-term-care coverage. Original Medicare also does not have a traditional annual out-of-pocket maximum unless the employee purchases additional coverage.

Medicare Advantage plans may include extra benefits and an annual out-of-pocket limit, but they may also use provider networks, prior authorization and referral requirements. In some cases, those restrictions may feel very similar to the employer plan the employee is considering leaving.

Prescription drug coverage also needs to be reviewed carefully. Every Part D or Medicare Advantage prescription plan has its own formulary, pharmacy network and cost structure. A plan that works well for one person may be a poor fit for someone taking different medications.

Higher-income employees may also pay additional amounts for Medicare Part B and Part D. Employees with younger spouses or dependent children may need to remain on the employer plan to preserve family coverage.

The right answer depends on the employee’s doctors, medications, household needs, financial situation and plans for retirement.

That is why employees need an individual comparison rather than a general presentation telling everyone that one option is better.

Employers sometimes become so concerned about Medicare compliance that they avoid saying anything at all.

The problem is not education. The problem is steering.

An employer should be able to explain how the company health plan works, how it coordinates with Medicare and what issues employees need to consider. The employer should not tell an employee which Medicare plan to select or pressure the employee to leave the group plan.

Employees must be allowed to make their own decisions.

The Medicare Secondary Payer rules are also important. In many situations, an employer health plan will remain primary for an actively working Medicare-eligible employee when the employer has 20 or more employees. For smaller employers, Medicare may generally pay first.

These rules can be complicated, particularly for multiemployer plans, employees with disabilities and employees with end-stage renal disease. Employers should work with an experienced benefits advisor and legal counsel rather than making assumptions.

Employers also need to be careful about offering incentives to Medicare-eligible employees. A targeted payment, contribution or other financial benefit designed to encourage an employee to leave the employer plan can create serious problems.

An employee may voluntarily decide Medicare is the better option. The employer should not create pressure or make the decision for them.

Medicare education should begin several months before an employee or covered spouse becomes eligible.

Waiting until the employee is preparing to retire or has already missed an enrollment deadline is too late.

Employees should receive a basic explanation of their choices, including staying on the employer plan, enrolling in Original Medicare with supplemental coverage or selecting a Medicare Advantage plan.

They should also understand that asking questions about Medicare will not affect their eligibility for the employer plan.

From there, the employee should compare the employer plan and Medicare based on total cost, provider access, prescription drug coverage, family needs and expected healthcare utilization.

The comparison should be personal. An employee who rarely uses healthcare may reach a different conclusion than someone receiving ongoing specialty treatment. An employee covering a younger spouse may reach a different conclusion than a single employee preparing to retire.

Health savings accounts are another major area of confusion.

Once an employee enrolls in Medicare, the employee is generally no longer eligible to make or receive HSA contributions. This includes employer contributions.

Medicare coverage may also be retroactive in certain situations, especially when an employee delays enrollment and later applies for Social Security benefits. That retroactive coverage can create excess HSA contributions if the employee and employer do not plan ahead.

Employees should understand these rules before enrolling in Medicare, not after a tax issue has already been created.

Employers should coordinate with their benefits advisor, payroll team and HSA administrator to make sure contributions stop at the proper time.

One of the most common Medicare mistakes involves COBRA.

Employees often assume they can elect COBRA after leaving employment and delay Medicare enrollment until COBRA ends. That assumption can lead to late-enrollment penalties and gaps in coverage.

COBRA is not always treated the same as coverage based on current employment for Medicare enrollment purposes.

Employees approaching retirement need to understand how their Medicare Special Enrollment Period works and when they need to enroll in Part B. This conversation should happen before active employment ends.

An employee who receives inaccurate advice in this area can face permanent Medicare penalties, delayed coverage and unexpected medical expenses.

HR professionals should understand the basic Medicare rules, but they should not be expected to recommend specific Medicare products.

The employer should explain the employer health plan. A qualified Medicare professional should explain the Medicare options. The employee should make the final decision.

This separation helps protect both the employer and the employee.

Employers may refer employees to an independent Medicare advisor or to a State Health Insurance Assistance Program. These programs provide Medicare education and counseling without requiring HR to become the employee’s Medicare expert.

Employers should still be thoughtful about the advisors they recommend. Not every Medicare agent provides an objective comparison. Some may be focused primarily on enrolling employees in the products that pay the highest commissions.

A good advisor should evaluate the employee’s providers, medications, finances, family situation and coverage goals before making a recommendation.

Medicare education should not be handled differently for every employee.

Employers should create a written and repeatable process for employees approaching Medicare eligibility. The materials should explain that the education is voluntary and that the employer is not providing legal, tax or individualized Medicare advice.

The process should make it clear that employees remain responsible for their final enrollment decisions.

Employers should also maintain accurate employment and coverage records. Employees who delayed Medicare because they remained actively employed may need the employer to verify their prior group health coverage.

The employer should also provide the required Medicare Part D creditable coverage notice and encourage employees to retain it. That notice may be important when the employee eventually enrolls in prescription drug coverage.

Any reimbursement arrangement, opt-out payment, retiree benefit or special incentive involving Medicare-eligible employees should be reviewed carefully before it is offered.

Keeping every Medicare-eligible employee enrolled in the employer plan is not always doing that employee a favor.

For many employees, Medicare may provide broader access to care, more predictable expenses, better portability and less financial exposure.

But the employee must make that decision.

The employer’s role is not to sell Medicare, recommend a specific plan or push older employees off the company coverage. The employer’s role is to provide accurate information, explain how the employer plan works and connect employees with qualified guidance.

Handled properly, Medicare education does not have to create unnecessary employer liability. It can be an important part of a thoughtful benefits strategy and a valuable service for employees facing one of the most confusing healthcare decisions of their lives.

*This article is intended for general educational purposes only and should not be considered legal, tax or individualized Medicare advice. Employers should consult with their benefits advisor and legal counsel regarding their specific plan and workforce.*