Paid out? How much more confusion could be created? The arrangement and disclosure appear to be a disaster. It is bad enough with the health plan elections, which are annual elections. Are the 401(k) elections annual? I do not see how this can make any sense to the poor particpants if the election rate can be changed during the year.
My gut tells me that ANY reimbursement of Medicare premiums when an employer group plan is also available is a prohibited incentive for the EE to choose Medicare and violates the Medicare secondary rules.
My recollection is IRS caveated it's statements in 2015-17 to say they weren't addressing other non tax rules (such as Medicare secondary).