MINNESOTA SERVICE COOPERATIVES. Model Collective Bargaining Language. For Adoption of Group Medicare Supplemental Insurance

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1 MINNESOTA SERVICE COOPERATIVES Model Collective Bargaining Language For Adoption of Group Medicare Supplemental Insurance Instructions. The model collective bargaining language that follows addresses the implementation of employer-sponsored group Medicare supplemental insurance coverage for hospital, medical and prescription drug programs. Disclaimer. Model language may not be appropriate for every situation, and employers and unions should make their own determination as to the suitability of model language for their purposes. This model language is for discussion purposes only. It is not intended as legal or tax advice, and may not be relied upon as such. Legal review of these arrangements is recommended. Ground Rules Medicare Secondary Payer Rules. The Medicare Secondary Payer rules generally provide that employers may not offer Medicare supplemental insurance to individuals in current employment status or their dependents, even if those individuals or their dependents are eligible for Medicare because of age or disability. Except as provided below, these employers may only offer Medicare Supplemental Insurance to former employees and their dependents who are eligible because of age or disability. Exception for employers with fewer than 100 employees. If an employer had fewer than 100 employees, whether full-time or part-time, on at least 50% of its regular business days during the previous calendar year, Medicare supplemental insurance may be offered to active employees and dependents who are entitled to Medicare because they are disabled. Active employees would rarely if ever be entitled to Medicare because of disability, but a significant number of active employees may have disabled dependents that are eligible for Medicare. These family members could enroll in employersponsored Medicare Supplemental Insurance, and if they are the employee s only dependent, the active employee could then move from family to single coverage. Depending on the arrangement, this could result in cost savings to the employee while reducing the cost to the group health plan (by making Medicare primary). Exception for employers with fewer than 20 employees. If an employer does not have 20 or more employees for each working day in at least 20 weeks in either the current or previous calendar year, Medicare supplemental insurance may be offered to active employees and dependents who are entitled to Medicare because they have attained age 65. The 20-employee test must be run at the time the individual receives medical services for which Medicare benefits are paid, which requires constant monitoring by employers that have workforces close to the threshold. This is a risky proposition and not

2 recommended for groups near the edge of the 20-employee limit. End-Stage Renal Disease (ESRD). Employees and former employees with ESRD (kidney failure) cannot be offered Medicare Supplemental Insurance during the first 30 months of Medicare eligibility, unless the employee was already entitled to Medicare due to age or disability at the time they became eligible for ESRD-based Medicare. Minnesota Law. Minnesota law generally provides that governmental units must allow a former employee and the employee's dependents to continue to participate indefinitely in the same employer-sponsored hospital, medical, and dental insurance group that the employee participated in immediately before retirement. Presumably, then, a former employee may voluntarily choose alternative coverage for the employee and his or her dependents. Because the employer-sponsored Medicare Supplemental Insurance provides excellent coverage at a lower cost (due to the federal subsidy), it may make sense for individuals to select this option for themselves and their beneficiaries notwithstanding any right to remain on the employer s plan. Once a former employee turns 65, the former employee need not be pooled in the same group as active employees for purposes of establishing premiums and coverage. The model language includes options for offering Medicare Supplemental Insurance as the exclusive employer-sponsored group coverage for individuals who attain age 65. Objective. The reason for offering employer-sponsored group Medicare supplemental insurance is to maximize the value of federal Medicare subsidies to the extent permitted by law. Because older individuals incur significantly higher medical costs, this shifts the burden of retiree coverage from local taxpayers to the federal government. It also reduces claims under the plan that will lead to the higher premiums. Depending upon employer subsidies, if any, the cost of Medicare supplemental insurance to former employees is generally much less than the cost of remaining on the employer s plan. Provided that the level of coverage is satisfactory to individuals and unions, it makes sense to maximized opportunities to encourage voluntary adoption of the Medicare supplemental insurance coverage, and to require that former employees and their dependents enroll in such coverage upon attaining age 65. MODEL LANGUAGE ARTICLE 1. Employer-Sponsored Group Medicare Supplemental Insurance for Employees and Dependents. Section 1. Coverage and Effective Date. Effective [insert effective date] (the Effective Date ), Employer shall make available one or more group Medicare supplemental health insurance policies for hospital, medical and prescription drug coverage ( Medicare Supplemental Insurance). The Medicare Supplemental Insurance is described in Attachment 1.

3 Section 2. Eligibility. Medicare Supplemental Insurance is only available to former employees and dependents of former employees if the former employee or dependent is (1) eligible for and enrolled in Medicare (including Parts A, B, and D, as may be required by the terms of the supplemental coverage selected by the individual) and is (2) entitled under Minnesota law to continue indefinitely in employer-sponsored group health insurance. For this purpose, a dependent has the same meaning as under the Employer s group health plan for active employees, and a former employee may receive dependent coverage only if the employee received dependent coverage immediately before leaving employment. Comment: Minn. Stat. Sec , Subd. 2 provides that in order to be eligible to continue indefinitely in employer-sponsored group health coverage, the former employee must be receiving a disability benefit or an annuity from a Minnesota public pension plan other than a volunteer firefighter plan, or must have met age and service requirements necessary to receive an annuity from such a plan. In addition, such former employees and dependents (hereafter, Eligible Individuals ) must fall within one or more of the classifications described below. Subd. 1. Voluntary Coverage. The following Eligible Individuals may voluntarily elect coverage under a Medicare Supplement policy in lieu of other coverage available through the Employer [choose one or more]: (1) Former employees who have not yet attained age 65, but who are entitled to Medicare because of disability; (2) Dependents of former employees [option if less than 100 employees: and active employees ] who are entitled to Medicare because of disability; (3) Dependents of former employees [option if less than 20 employees: and active employees ] who are eligible to enroll in Medicare because they have attained age 65; (4) Former employees [option if less than 20 employees: and active employees ] who have attained age 65 or older. Comment: Under Minnesota law, it may be possible to limit coverage for former employees who have attained age 65 or older to Medicare Supplemental Coverage. These options are set forth in Subd. 2 below, entitled Exclusive Coverage Available to Former Employees and Dependents age 65 or older. When drafting collective bargaining language, care should be taken to ensure that the voluntary coverage and exclusive coverage provisions are consistent. Not also that if a former employee elects Medicare Supplemental Insurance, the former employee s dependents may elect to continue coverage under the Employer s group health plan or if eligible for Medicare, elect Medicare Supplemental Insurance.

4 Sudb. 2. Exclusive Coverage Available for Former Employees and Dependents age 65 or older. The Medicare Supplemental Insurance described herein is the sole and exclusive coverage option provided by the Employer for the following individuals [choose one or more]: (1) Former employees [option if less than 20 employees: and active employees ] who have attained age 65 or older; and (2) Dependents of former employees [option if less than 20 employees: and active employees ] when both the dependent and the former employee are age 65 or older [Option if less than 100 employees: (3) Dependents of former and active employees who entitled to Medicare because of disability. ] Legal argument for limiting coverage to Medicare Supplemental Insurance at age 65. The Medicare Secondary Payer rules permit an employer to offer Medicare Supplemental Insurance to former employees who have attained age 65 and older as the exclusive form or retiree coverage (generally, federal law does not require employers to offer any form of retiree coverage). Employers with less than 20 employees may offer the same benefit to active employees age 65 or older (and eliminate other group coverage for this group). These rules may not apply, however, to employees who are Medicare-eligible because of ESRD. Minn. Stat. Sec , subd. 2b only requires that former employees be pooled with the active employees until age 65. Upon attaining age 65, the employer must continue to offer a group health option, but it does not have to be the same option made available to active employees. As the Minnesota Attorney General has noted, the reference to age 65 in subd. 2b above leads to the conclusion that, while retired employees may participate indefinitely in an employersponsored group plan, the premium and level of coverage provided to retired employees 65 years of age and over may differ from that provided to then-active employees. Minn. Op. Atty. Gen , 1998 WL There is no Minnesota statutory or regulatory guidance on whether an employer-sponsored Medicare supplemental insurance plan is the same as an employersponsored group plan. But a large body of federal law supports such a conclusion. Finally, the United States Supreme Court recently let stand a decision by the lower courts which allows employers to offer different coverage to retirees who attain age 65 without violating the Age Discrimination in Employment Act. From a legal perspective, therefore, it appears that an employer may meet its obligation to allow certain eligible former employees to remain on its group plan indefinitely even if it limits coverage after age 65 to Medicare Supplemental Insurance. Subd. 3. End-Stage Renal Disease (ESRD). Notwithstanding the forgoing, individuals with ESRD shall not be eligible for Medicare Supplemental Insurance during the first 30 months of the individual s ESRD-based Medicare eligibility or entitlement, unless the individual was entitled to Medicare due to age or disability on a primary basis at the time he or she becomes eligible for ESRD-based Medicare.

5 Section 3. Contributions. [Option 1: no employer contributions]. Eligible Individuals shall pay 100% of the cost of coverage under the Employer s Medicare Supplemental Insurance. Premiums are subject to change on an annual basis. The Employer may discontinue coverage if an Eligible Individual fails to pay the premium when due. In no event shall the Employer be responsible for the payment of any penalty or increased premiums as a result of an employee s late enrollment in Medicare. [Option 2: Employer contributions]. The Employer shall contribute an amount not to exceed the following for certain Eligible Individuals: (1) Not more than $ towards the monthly premium cost of Medicare Supplemental Insurance for former employees who have not yet attained age 65, but who are entitled to Medicare because of disability; (2) Not more than $ towards the monthly premium cost of Medicare Supplemental Insurance for dependents of former employees [option if less than 100 employees: and active employees ] who are entitled to Medicare because of disability; (3) Not more than $ towards the monthly premium cost of Medicare Supplemental Insurance for dependents of former employees [option if less than 20 employees: and active employees ] who are eligible to enroll in Medicare because they have attained age 65; (4) Not more than $ towards the monthly premium cost of Medicare Supplemental Insurance for former employees [option if less than 20 employees: and active employees ] who have attained age 65 or older]. Comment. Employers may wish to make contributions towards the Medicare Supplemental Insurance to encourage Eligible Individuals to enroll in these programs. Section 4. No Vested Rights. The benefits described herein will be provided during the term of this collective bargaining agreement ( Agreement ). In no event shall this Agreement provide any individual with vested rights to benefits, rights or features under the Employer s group health plan or Medicare Supplemental Insurance, nor shall employees who retiree during the term of this agreement be provided any such vested rights. Nothing in this Agreement requires the Employer to maintain a group health plan or a Medicare Supplemental Insurance beyond the term of hereof. If and to the extent that future agreements provide for group health coverage, these agreements may result in changes to the Employer s group health plan and Medicare Supplemental Insurance, including but not limited to changes in required contributions, covered procedures, available providers, deductibles, co-pays, or co-insurance. No modification of the terms of this Agreement shall be effective unless it is in writing and signed on behalf of the Employer and the Union. No oral representation concerning the interpretation or effect of this Agreement shall be effective to amend the Agreement. Employer shall not be bound to provide any benefit deemed not to comply with state or federal law.