Can't pay over-65 employees additional compensation to drop out of the

[Guest taylorjeff]

I'm talking to a potential client with over 20 employees who also has several age 65+ employees. The employer has asked me why they can't pay these employees additional compensation to drop out of the employer sponsored health plan and buy medicare supplements. I've told them it was illegal but can't put my hands on anything that spells out the possible penalties. Does anyone know what the penalties are? The CFR reference?

[GBurns]

Why would you think that it is illegal? ... In fact it is a situation I have seen quite a number of times and seen it pass scrutiny. [Edited by Dave Baker on 08-21-2000 at 10:54 PM]

[Mary C]

How about the Medicare Secondary Payer provisions? The 2000 Instruction booklet from HCFA has several sections highlighted in red. Some of them are:

"An employer cannot offer, subsidize, or be involved in the arrangement of a Medicare supplement policy where the law makes Medicare the secondary payer."

or

"If they reject coverage under the employer plan, you may not offer them, facilitate or subsidize a plan intended only to supplement Medicare benefits."

and lastly, here's part of the IMPORTANT WARNING

. . .. HCFA wishes to make sure that employers understand the legal consequents of purchasing directly or indirectly and individual Medicare supplement (Medigap) policy for an employee or spouse of an employee. This arrangement constitutes a GHP (group health plan) uner Medicare law and the Internal Revenue Code. . . . In addition, the plan, because it takes inaccount the Medicare entitlement of the beneificary is also a non-conforming GHP which would subject the employer to possible excise taxes.

According to the booklet, the underlying regulations are in Section 1862(B) of the Social Security Act (42 U.S.C. Section 1395y(B))and at 42 C.F.R. Part 411 (1990)

[Guest taylorjeff]

Thanks Mary,

I'll spend some time this weekend looking through the regulations. I'll report back what I find so we can close this thread out. Jeff Taylor

[Guest Mfcavo]

I understand Mary's concerns under the regs she cites but if the employer just offers cash in lieu of continued benefits, then it would not be offering, subsidizing, etc. an arrangement. I think those regs are designed to prevent an employer from arranging MEDIGAP coverage with an insurer, etc. and selling employees on the alternative to save money. A simple offer of cash would not seem to fall under the regs.

[Mary C]

The only way you can offer money to opt out and get other coverage and NOT run afoul of the Medicare as secondary payer regs is if you offer the same amount to everyone eligible for the plan.

[Kirk Maldonado]

Mary:

I seem to recall that HCFA has recently taken the position that even if you offer it to everybody in the plan, that is still improper. I think that is a very aggressive position to take, but I think that employers need to be advised of HCFA's stance before they act.