ERISA Compliance: Understanding Healthcare for your Medicare-Eligible Employees

Sep 13, 2023

Employers and their HR Teams are always on the search for better ways to take care of their employees — of all ages. One key element of effectively caring for employees is thoroughly understanding your workforce and the needs they have based on their different phases of life. For your older Medicare-eligible employees, caring for them looks like creating and offering a healthcare plan that addresses their unique life stage — whether they’re actively employed or retired. Employers also need to understand the financial implications of their retiree-eligible health plan strategy.   

One of the reasons the Employee Retirement Income Security Act of 1974 (ERISA) was enacted was to ensure retirees remain taken care of. This federal law sets minimum standards for most voluntarily established retirement and health plans and provides protection for the individuals in these plans. As an employer, maintaining ERISA compliance is critical not only to care for your employees but also to avoid any damages or repercussions. 

Creating a Healthcare Plan Strategy for ERISA Compliance

Your healthcare strategy impacts both the health plan itself and the individuals enrolled in the plan. It’s critical to implement a healthcare strategy specifically for Medicare-eligible employees and retirees, as there are regulations related to how to manage your aging workforce and Medicare-related communications. 

To maintain ERISA compliance, employers should work alongside their insurance broker to develop a health plan strategy that includes proper care for the aging workforce, and fully understand the cost implications associated with all recommendations. For example, Medicare-eligible employees may remain on the employer’s group health plan until retirement, which could be well after Medicare entitlement. However, there is an employer cost for going that route and it needs to be considered.

To ensure ERISA compliance and keep the company’s best interest in mind, employers should follow these steps:
  1. Understand Your Workforce — What healthcare benefits do they need and how can you, as an employer, best provide for them?
  2. Understand the Regulations — What is required for ERISA compliance
  3. Develop a Strategy — Sync with your employee benefits broker to create a detailed and customized plan that benefits your organization and employees. 

Don’t forgetWhile the healthcare plan financial performance may be a major focus of your strategy, you must also develop your communications strategy tailored specifically for your Medicare-eligible employees. Their communication messaging and methods is likely unique from the rest of your workforce — so a custom communications plan may likely prove necessary to successfully inform them of their health plan options. 

How to Best Understand Your Workforce to Create an Effective Health Plan Strategy

The Silent Generation: Employees over age 70
  • Should draw Social Security
  • Medicare Part A is activated when they begin to draw Social Security, which eliminates their opportunity to contribute to an HSA
  • There is a lookback period of 6 months for HSA contributions prior to turning on Medicare Part A and/or Part B
  • Should be planning exit strategies
 Baby Boomers: Employees age 55-70
  • Should begin planning when to draw Social Security
  • Can begin drawing Social Security at age 62
  • The full retirement age is between 65 and 67
  • Employees can be automatically enrolled in Medicare Part A if they begin drawing Social Security prior to age 65
Generation X: Employees Age 40-54
  • These employees are often supporting and caring for their loved ones
  • Should begin planning when to draw Social Security
  • Actively planning for retirement
  • Because this workforce commonly has children at home, they have a different set of financial needs compared to other generations
  • Begin conversations around financial security, long-term care, life insurance and whether they want to leave a financial legacy for their children

As an employer, it’s your responsibility to maintain ERISA compliance and support all demographics of your workforce. Employer duties for Medicare-eligible employees include:

  • Employers must inform employees and spouses entitled to Medicare that they may reject coverage under the plan and choose Medicare as their primary payer.
  • If they reject coverage under the employer plan, you may not offer them or facilitate or subsidize a plan intended only to supplement Medicare’s benefits.
  • Employer plans may, however, offer coverage for items and services for which Medicare provides no benefits (e.g., eyeglasses).
  • Beneficiaries who reject the employer plan may purchase Medicare supplemental coverage from a source other than the employer. Employers may not subsidize, purchase or be involved in the arrangement of an individual supplement policy for the employee or family member.
  • Medicare is the secondary payer to Group Health Plans, while the Group Health Plan is the primary. 

Understanding and maintaining ERISA compliance can get a bit tricky, but it is a crucial part of your employee healthcare strategy. Caring for your workforce looks different from generation to generation, and taking the time to fully understand what each generation requires from a healthcare benefit standpoint will allow you to strategically plan. 

If you are an employer or HR Team member interested in learning more about caring for your Medicare-eligible employees, connect with a Totem team member today.

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