Can an employer pay for an employee’s or spouse’s Medicare plan or provide an incentive to enroll in Medicare instead of the group health plan?

If an employer has 20 or more employees, the answer is no. Employers with 20 or more employees are subject to Medicare Secondary Payer (MSP) rules, which say an employer cannot provide a financial incentive to an active employee or spouse to encourage enrollment in Medicare instead of the group health plan. Reimbursing an employee’s Medicare premiums or providing additional compensation if the employee drops the group health plan are both considered to be providing a financial incentive.

There are two relevant guidelines under the MSP Regulations. The first prohibits an employer with 20 or more employees from taking an individual’s Medicare status into consideration. The second guideline prohibits an employer (again, with 20 or more employees) from providing a financial incentive for a Medicare-eligible individual to not enroll or terminate group coverage to make Medicare primary.

To summarize, employers should not take into account an employee’s or spouse’s Medicare status and should offer the same benefit options that are available to other employees and spouses who have not reached Medicare age. Employers who violate MSP rules can be subject to penalties of up to $5,000 per violation, legal action and liability for damages, and excise tax penalties.