QUESTION: We understand that our group health plan can terminate COBRA coverage early if a qualified beneficiary becomes entitled to Medicare after electing COBRA. What does it mean to be “entitled” to Medicare?
ANSWER: When qualified beneficiaries (including covered employees) first become entitled to Medicare after electing COBRA coverage, their COBRA coverage can be terminated early—before the end of the maximum coverage period. For this purpose, the Medicare terms “eligibility” and “entitlement” are not synonymous, and it is important to understand the difference. “Entitlement” means that an individual who is eligible for Medicare has actually enrolled in Medicare and may currently receive benefits. An individual who must take additional steps to enroll in Medicare before receiving benefits is not yet “entitled” to Medicare for purposes of the COBRA rules.
Individuals who become eligible for Medicare Part A (hospital insurance) based on age, disability, or end-stage renal disease (ESRD) must apply to become entitled to Part A coverage in many cases, but entitlement is automatic for individuals who have already applied for and are receiving Social Security or Railroad Retirement Act benefits. Individuals become entitled to Medicare Part B (physicians’ services and other health expenses) either automatically when they become entitled to Part A, or later during specified enrollment periods.
Although group health plans are allowed to terminate a qualified beneficiary’s COBRA coverage early upon Medicare entitlement, it is important to remember that the COBRA rights of other qualified beneficiaries in the family unit who are not entitled to Medicare are not affected. For example, the plan could not terminate the COBRA coverage of the spouse and dependent children of a Medicare-entitled former employee.
Source: Thomson Reuters
QUESTION: Although Medicare entitlement is listed as a COBRA triggering event, our company’s COBRA TPA does not offer COBRA to covered employees when they become entitled to Medicare. Is Medicare entitlement a COBRA qualifying event for active employees who become entitled to Medicare but do not lose coverage under our group health plan?
ANSWER: Medicare entitlement is not a COBRA qualifying event for active employees who become entitled to Medicare but do not lose coverage under a group health plan. If a COBRA triggering event (such as Medicare entitlement) does not cause a loss of plan coverage, there is no qualifying event, and COBRA need not be offered. Medicare entitlement rarely causes a loss of plan coverage for active employees and, therefore, will rarely be a qualifying event. This is because the Medicare Secondary Payer (MSP) rules generally prohibit group health plans from making Medicare entitlement an event that causes a loss of coverage for active employees.
The MSP statute generally prohibits a group health plan from “taking into account” the age-based or disability-based Medicare entitlement of an individual who is covered under the plan by virtue of the individual’s current employment status. In addition, the plan generally must provide a current employee who is age 65 or older with the same benefits, under the same conditions, as those provided to employees who are under age 65. Among the employer or insurer actions that constitute an impermissible “taking into account” are (1) terminating coverage because the individual has become entitled to age-based Medicare; or (2) in the case of a large group health plan, denying or terminating coverage because the individual is entitled to disability-based Medicare without also denying or terminating coverage for similarly situated individuals who are not entitled to disability-based Medicare. (Special rules apply for ESRD-based Medicare.) Consequently, Medicare entitlement will rarely be a COBRA qualifying event because it will rarely cause a loss of plan coverage for active employees.
Be aware, however, that it is permissible under the MSP rules for Medicare entitlement to cause a loss of coverage for covered retired employees. In such a case, Medicare entitlement would constitute a qualifying event for the affected spouse and dependent children (not for the covered retiree), permitting them to elect up to 36 months of COBRA under the plan.
Source: Thomson Reuters
During a December 1 payroll industry conference call, the IRS discussed the recent increase in the qualified small business payroll tax credit for increasing research activities as provided under the Inflation Reduction Act.
Background: A provision of the Inflation Reduction Act allows a “qualified small business” (QSB), for tax years beginning after December 31, 2022, to apply an additional $250,000 in qualifying expenses as a payroll tax credit against the employer share of Medicare. Prior to the act, a QSB could apply $250,000 against the employer share of Social Security. The total credit that may be applied will be $500,000 beginning after December 31, 2022. Unused amounts of the credit may be carried over.
Future form revisions: The IRS noted that Form 6765 (Credit for Increasing Research Activities) and its instructions must be revised and will reflect the increased $500,000 limit for the payroll tax credit election. Further, Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities) and its instructions must be updated to calculate the amount of credit that can be applied against both Social Security and Medicare. The IRS anticipates the updated forms to be released during the first quarter of 2023.
Claiming the credit: The IRS emphasized that the calculation of the credit does not change on Form 6765 and that only the amount of the credit increases. This form is attached to tax returns as an annual election and cannot be made for the tax year if the election was made for five or more preceding tax years. Taxpayers can claim the credit on Form 941 starting with the first quarter that began after the election. Form 8974 must be completed and attached to Form 941. When the new election with the $500,000 limit is made on Form 6765 that is in effect for 2023 tax year, the IRS expects that it will be claimed in 2024.
Electronic filing of Form 8974: This form is available to be filed electronically. Moreover, Form 8974 can be used to indicate up to a $250,000 credit for the employer share of Social Security and an additional $250,000 credit for the employer share of Medicare. Amounts that are not used can be carried over to a subsequent employment tax return.
Source: Thomson Reuters
As you may be aware, a Health Savings Account (HSA) is a great resource to help pay for medical expenses and premiums. But what happens to an HSA once someone enters retirement? Here is what you need to know.
- If you are enrolled in Medicare or Medicaid, you’re no longer eligible to contribute to an HSA.
- If you are Medicare eligible, but aren’t enrolled in Medicare, you can contribute to an HSA by enrolling in an HSA-qualified High Deductible Health Plan (HDHP). This type of health insurance plan has lower monthly premiums than traditional health insurance plans and can be combined with an HSA.
- If a distribution from an HSA is used for purposes other than a qualified medical expense, the amount withdrawn is subject to both income tax and a 20% penalty. However, once a person reaches the age of 65 years old or older, the amount withdrawn for non-medical purposes is treated as retirement income and is subject to normal income tax.