$$ Incentive to Opt Out of Coverage

[Christine Roberts]

Employer with self-insured group health plan wants to restructure benefits, such that employees are offered additional cash compensation if they opt our of discretionary benefits including group health coverage. Presuming these employees are not Medicare eligible through age or disability, is there any problem with the Medicare Secondary Payer Act, in making such an offer? As a precaution shouldn't the employer get a written statement from employees who opt out, demonstrating that they have coverage elsewhere (e.g., through a spouse's employer)?

[KIP KRAUS]

Christine:

I don’t know why there would be an issue with Medicare Secondary Payer Act. Does the Act say that an employee who is offered employer sponsored medical coverage must take it in order to have Medicare coverage, I wouldn’t think so. If the employee opts out and has Medicare coverage Medicare would be primary. In any event, I believe an employee can opt to have Medicare be primary over an employer’s plan.

As to the employer having the employee attest to having coverage elsewhere, I would say it depends on the employer’s philosophy of wanting employees to have medical coverage. If he doesn’t care, then don’t worry about it. Our company will not allow an opt out payment unless the employee can prove coverage elsewhere with another employer plan.

[Guest Debbie Button]

We've had several medicare eligible employees in the past few years and have found the following when dealing with Medicare.

The act doesn't say that a Medicare eligible employee who has access to employer sponsored health insurance must take it. It is entirely up to the employee as to whether they accept the employer's plan or not.

However, if an employee is Medicare eligible and has also elected employer sponsored coverage, employer's coverage is ALWAYS primary and Medicare is secondary.

The employees can not receive an opt out payment for refusing employer sponsored health insurance and still be on Medicare. Basically, Medicare looks at that as "paying" the employee to take Medicare. We do not give opt out payments to anyone once they reach age 65.

On to the issue of employer's requiring proof of coverage elsewhere, we do require it. I agree with Kip though, you do not have to require the documentation. That's a company philosophy.

[Guest Kathleen Meagher]

According to the IRS, an employer that offers employees a choice between nontaxable medical benefits and cash compensation must be sure that this arrangement complies with the requirements of Code section 125, governing cafeteria plans. This section applies to all such choices, even if the employer did not intend to establish a formal cafeteria or flex plan.

There are those who believe that the IRS position is wrong. Since it is not that difficult to comply with the cafeteria plan rules (once you know that they apply) I advise my clients to "cafeteria-ize" these opt-out arrangements.

Kathleen Meagher