Benefits | Employee Medicare Premiums

What Are the Benefits Implications of Paying Employee Medicare Premiums?

In an informal discussion letter, an attorney from the Equal Employment Opportunity Commission (EEOC) addressed the Age Discrimination in Employment Act (ADEA) implications of offering Medicare-eligible employees a choice between employer-provided health coverage and the employer’s reimbursement of their Medicare Part B premiums.

The EEOC letter is not a formal opinion and does not address tax or other issues outside of the ADEA. But it does help answer the question: What Are the Implications of Paying Employees’ Medicare Premiums? Could it Result in a Claim of Discrimination Based on Age?

The letter responds to a consulting firm that had been advising employers to give employees information about both choices. The employers required employees opting for Medicare reimbursement to acknowledge in writing that they had reviewed the information and voluntarily chosen to withdraw from the employer’s plan.

The letter goes on to explain that the EEOC and some courts have found that distinctions based on Medicare eligibility are based on age, since most individuals qualify for Medicare by reaching age 65. However, the ADEA prohibits only conduct that treats older workers adversely. Providing older workers with more advantageous options than younger workers doesn’t violate the ADEA. Whether an arrangement provides more advantageous options to older workers or treats them adversely cannot be determined without a factual investigation.

If an arrangement did create an adverse action for older workers, the letter adds, it would be unlawful unless an ADEA exemption or defense applied. “The EEOC has promulgated a ‘retiree health’ exemption that allows employers to limit or eliminate employer-provided health benefits for Medicare-eligible retirees, but this exemption does not apply to the health benefits of current employees,” the letter states.

However, an employer might be able to meet the “equal cost or equal benefits” defense, which requires an employer to either incur an equal (or greater) cost for the benefit relative to the health coverage provided to younger employees or provide an equivalent benefit to older employees. In applying the “equal benefits” portion of the defense, the employer may take into account the availability of Medicare benefits, but not to justify a reduction in employer benefits that results in an older worker being entitled to a lesser benefit of any type (including coverage for family members) than a similarly situated younger worker.

For example, the availability of certain benefits under Medicare will not justify denying an older employee a benefit that is provided to younger employees and is not provided to the older employee by Medicare.

Employers should consult with their attorneys before restricting benefits for current employees based on age. In addition to ADEA implications, employers must also consider the Medicare Secondary Payer (MSP) rules and recent agency guidance regarding Medicare premium reimbursement arrangements and health care reform. For example, the MSP rules prohibit most employers from offering any incentives for individuals entitled to Medicare not to enroll (or to terminate enrollment) under a group health plan that would otherwise be primary.