Does Medicare Make Sense If You're 65+ With Employer Coverage?
The rise of high-deductible health plans has changed this expert's view
(This article originally appeared on PBS NewsHour.org.)
Editor’s Note: Journalist Philip Moeller provides answers to questions on aging and retirement in his weekly PBS NewsHour column, “Ask Phil.” Send your questions to Phil.
More and more employers are adopting high-deductible health plans, which usually include a Health Savings Account (HSA). In 2016, between 20 and 23 million employees and family members had HSAs, according to the Employee Benefit Research Institute. These plans can make Medicare more popular to employees aged 65 and older, even if they have the option of staying on their employer plans.
Ask Phil readers already are familiar with a major pitfall of HSA plans for employees receiving Social Security: To get Social Security payments, beneficiaries 65 and older must also sign up for Part A of Medicare.
Part A charges no premiums to people who have enough work experience to qualify for Social Security benefits. It can come in handy as supplemental insurance to help pay for hospital and other institutional health care expenses covered by Part A but either not covered by their employer plan or not fully paid for by that plan.
The HSA Rules for People With Medicare
This is usually a nice benefit to have. However, Part A comes at a heavy price for HSA participants: Having Part A qualifies as being on Medicare, and Medicare recipients are prevented under Internal Revenue Service rules from making new pre-tax contributions to an HSA. They may use funds already in an HSA account, but cannot add funds.
If their employers don’t also offer a non-HSA health plan, the employees could be on the hook for sharply higher health insurance expenses.
This downside, when added to the burden of high, and often rising, annual plan deductibles, can make getting Medicare more attractive for employees with group health plans.
Why My Thinking Has Changed
In the past, I usually told employees turning 65 that they did not have to get Medicare and could simply keep their employer plans. My thinking has changed.
The rise of high-deductible plans should trigger a serious study by people about the merits of Medicare — either in addition to employer plans or in place of them.
The current monthly premium for Part B of Medicare is $134 a month. (Part B covers expenses for doctors, care at non-hospital facilities, and durable medical equipment.) This works out to a bit more than $1,600 a year. There also is a $183 annual deductible that people must pay for Part B expenses before their insurance coverage begins.
For people keeping their high-deductible employer plans, laying out $2,000 for Part B premiums and deductibles could well be money well spent. This is because Medicare can be a secondary insurer and can pay a big hunk of covered plan expenses before the plan’s annual deductible is reached.
When Medicare Is a Secondary Payer
I regularly receive questions from Ask Phil readers about whether Medicare can help pay these employer-plan deductibles and how this process works. Casey Schwartz, a benefits expert at the Medicare Rights Center provided this explanation:
“Medicare pays secondary to other insurance (including paying in the deductible) in situations where the other insurance is primary to Medicare. There are some restrictions — it has to be a Medicare covered service and the total amount paid must be equal to or less than the Medicare approved amount.”
If the care costs more than the Medicare-approved amount, she explained, Medicare coverage will cover up to that amount and the employee would pay the difference if he or she wanted the care.
Medicare and Group Health Plans
Schwartz noted that there is an online Medicare manual explaining rules of how Medicare works as a secondary payer of covered claims. Here is a section that gets to the heart of how it can work with employer group health insurance (GHP):
“Where a GHP is primary payer, but does not pay in full for the services, secondary Medicare benefits may be paid, to supplement the amount it paid for the Medicare covered service. If a GHP denies payment for services because they are not covered by the plan as a plan benefit bought for all covered individuals, primary Medicare benefits may be paid if the services are covered by Medicare. Primary Medicare benefits may not be paid if the plan denies payment because the plan does not cover the service for primary payment when provided to Medicare beneficiaries.
A GHP’s decision to pay or deny a claim because the services are or are not medically necessary is not binding on Medicare. Contractors must evaluate claims under existing guidelines derived from the law and regulations to assure that services are covered by the program regardless of any employer plan involvement.”
When Prescription Drug Bills Are High
If you spend a lot on prescription drugs, you would want to explore getting a Medicare Part D drug plan. You usually need Part B to qualify for Part D, but this is not required if your employer plan’s drug coverage is inferior to a typical Part D plan. This is known as the drug coverage “credibility” test.
If you must pay thousands of dollars out of pocket for your drugs prior to reaching your health plan’s annual deductible, there is a good chance the drug coverage provided by your employer plan would not be considered credible.
Is Your Health Plan's Drug Coverage 'Credible?'
Employers are legally required under Medicare rules to issue annual statements about the credibility of their drug coverage. It might be possible for you to avoid getting and paying for Part B in this situation, but I’d only recommend this approach if you are comfortable that the bulk of your uninsured health expenses will be for prescription drugs.
It may well be that having employer insurance plus Medicare is not as attractive as simply dropping the employer plan and relying solely on Medicare as your primary insurer. This decision depends on how much your employer subsidizes your health care and on your maximum out-of-pocket expenses in a high-deductible employer plan. Also, if you drop an employer plan, it might not admit you back if you change your mind.
These possibilities should be explored with your employer’s benefits experts.
