Medicare Product Premiums Paid by Employer

[waid10]

Hi. I was speaking with an employer the other day. They had the practice of offering, to their Medicare-age employees, to move them off of the employer-sponsored health plan and to a Medicare product. In exchange for doing this, the employer was paying the premium for the Medicare product.

I informed the employer that this was impermissible and violated the Medicare Secondary Payer rules. Medicare-eligible employees cannot be provided a financial incentive to forego employer-sponsored health coverage (42 CFR 411.103(a)).

What I am not certain about now is whether the employer needs to re-categorize the premium payments made. In other words, should that premium payment be included in taxable income for the employee?

[leevena]

Moving them can be done. Can't say for sure if this group is doing it legally, but it can be done.

[waid10]

Moving them can be done. Can't say for sure if this group is doing it legally, but it can be done.

I believe it can only be done if the option of selecting the Medicare product is presented but the employer doesn't pay for it (which would remove the financial incentive to forego the employer sponsored coverage).

[masteff]

20 employees is the magic number. Search on medicare and supplement for prior discussions. Here's when I asked about it in 2009: http://benefitslink.com/boards/index.php?showtopic=43465

[waid10]

20 employees is the magic number. Search on medicare and supplement for prior discussions. Here's when I asked about it in 2009: http://benefitslink.com/boards/index.php?showtopic=43465

The employer is definitely over 20 employees. I am just not sure how to handle the premium payments made this year and also the premium payments made in prior years. Does it need to be re-categorized as income to the employees? If so, does the employer need to issue revised W-2s and must the employees file revised tax returns?

[oriecat]

I think it would still fall under the Sec 106 exclusion and be non-taxable. Medicare is still a health plan.

[MARYMM]

20 employees is the magic number. Search on medicare and supplement for prior discussions. Here's when I asked about it in 2009: http://benefitslink.com/boards/index.php?showtopic=43465

The employer is definitely over 20 employees. I am just not sure how to handle the premium payments made this year and also the premium payments made in prior years. Does it need to be re-categorized as income to the employees? If so, does the employer need to issue revised W-2s and must the employees file revised tax returns?

I would be talking to counsel if I were the employer. An employer cannot offer a Medigap policy let alone pay for it if Medicare is supposed to be secondary.

<snip>

Group Health Plans (GHP)

An employer cannot offer, subsidize, or be involved in the arrangement of a Medicare supplement policy where the law makes Medicare the secondary payer. Even if the employer does not contribute to the premium, but merely collects it and forwards it to the appropriate individual's insurance company, the GHP policy is the primary payer to Medicare.

<snip>

https://www.cms.gov/MedicareSecondPayerandYou/

[401 Chaos]

Appears we have a plan where the employer (more than 20 employees) has been reimbursing active employees for Medigap policy after they switched to Medicare coverage in lieu of group health coverage under the employer plan. Employer didn't realize there was any problem with this until recently. It has been going on for a few employees for a few years.

Employer wants to come clean / correct this situation but I'm not aware of any possible self-correction procedures, or at least any sort of amnesty-type program that would provide a break on the penalties involved. Does anyone have experience with this and/or recent experience with the typical penalties that would actually be assessed if the employer just stops doing this but doesn't take any corrective action and Medicare later discovers the issue on audit. I assume there could be a $5,000 civil penalty per violation (not sure what constitutes a violation), Medicare could deny prior claims and seek employer to reimburse, reimbursements paid to employee would be taxable if not previously taxed, etc.

Welcome any thoughts or experience dealing with these issues. Thanks.

[Chaz]

Appears we have a plan where the employer (more than 20 employees) has been reimbursing active employees for Medigap policy after they switched to Medicare coverage in lieu of group health coverage under the employer plan. Employer didn't realize there was any problem with this until recently. It has been going on for a few employees for a few years.

Employer wants to come clean / correct this situation but I'm not aware of any possible self-correction procedures, or at least any sort of amnesty-type program that would provide a break on the penalties involved. Does anyone have experience with this and/or recent experience with the typical penalties that would actually be assessed if the employer just stops doing this but doesn't take any corrective action and Medicare later discovers the issue on audit. I assume there could be a $5,000 civil penalty per violation (not sure what constitutes a violation), Medicare could deny prior claims and seek employer to reimburse, reimbursements paid to employee would be taxable if not previously taxed, etc.

Welcome any thoughts or experience dealing with these issues. Thanks.

This is a complicated issue. You need to speak with counsel on this. You can start with 42 CFR 411.25 and HHS Notice 94-1978.

[401 Chaos]

Thanks Chaz. I'm familiar with the guidance and we do have benefits counsel involved. Unfortunately, nobody on our end though has recent enforcement experience here and were just wondering if anybody out there might have recently confronted a similar situation and have recent experience with the penalties assessed.

[Chaz]

My experience is that actual enforcement is inconsistent. It depends on the particular Medicare Intermediary(ies) and the facts of the particular case. Sorry I can't be more specific.

[masteff]

#1 thing is to stop doing it ASAP.

[401 Chaos]

Agreed.

[taxllm]

Does anybody have any practical experience with the $5,000 penalty? We have an employer who would like to pay the penalty but we cannot find any information on where do you pay it. Or you just wait for Medicare to discover the violation and ask for money?

Thanks for any advice.