Beware coordinating benefits with Medicare

Can an employer reduce or eliminate benefits for a current employee when the employee becomes eligible for Medicare? No, because doing so is probably a violation of the federal Age Discrimination in Employment Act (ADEA) and also a violation of the Medicare rules, according to a recently released informal discussion letter from the federal Equal Employment Opportunity Commission (EEOC) (ADEA: Coordinating Medicare with Current Employees’ Benefits, August 2, 2011). In the discussion letter, the EEOC reminds employers that the ADEA exemption that allows employers to drop employer-sponsored health coverage upon Medicare eligibility applies only to retiree coverage, not to current employees. And, because dropping coverage for current employees upon Medicare eligibility is an age-based action, the employer must meet the ADEA’s “equal benefit or equal cost” defense to pass muster under the ADEA, meaning that the employer must provide older employees the same benefits as are provided to younger employees, or else they must incur the same cost to provide benefits, even if the benefits that may be purchased for that cost are less than what may be purchased for younger employees. Finally, the EEOC noted, the Medicare program itself requires employers to offer current employees, who are Medicare-eligible the same benefits under the same conditions as those employees who are not Medicare-eligible.

Tips: Another common pitfall for employers wishing to coordinate employer-sponsored health coverage with Medicare is offering incentives to Medicare-eligible employees to drop off the employer’s plan in favor of Medicare coverage. For employers of 20 or more employees, such incentives are illegal unless you offer them through a Section 125 cafeteria plan and offer them to all employees, regardless of whether they are Medicare-eligible. Questions? Contact Vigilant’s benefits attorney, Kristine Bingman (k.bingman@vigilantcounsel.org or 800-733-8621).