Time & Attendance
By Sarah Sipek
Feb. 24, 2015
Getting old is a mixed bag. Senior discounts, priority parking spaces and life experience definitely go in the pro column. Finding affordable health care is a con if you don’t know your options.
And employees over the age of 65 have quite a few.
Since the Affordable Care Act went into effect, more employers have added high-deductible health plans to their benefits offerings. A survey conducted by the National Business Group on Health found that 4 out of 5 employers will offer a high-deductible plan in 2015.
But it’s expensive. The federal government set $1,300 as the benchmark for a high-deductible plan for individual coverage. Family coverage costs an average of $2,600.
High upfront costs have some older members of the workforce considering a second option: Medicare. However, this could be a big mistake, said Michael Thompson, a principal in the human resources practice at PricewaterhouseCoopers.
“Medicare is not as rich of a plan as most employer plans,” Thompson said. “Typically, employer plans tend to be heavily subsidized and even more heavily subsidized for people who are older. More often than not it’s a better deal to stick with your employer’s high-deductible plan.”
Thompson explained that basic Medicare does not offer prescription drug coverage, which many people over age 65 need. Instead, an employee would need to purchase a separate Part D plan that is not as comprehensive as those offered through employers at discounted rates.
Those considering enrolling in Medicare simultaneously with a high-deductible plan are wasting their time, Thompson said.
“If you’re an active employee, the reality is that your employer’s plan will pay first,” Thompson said. “It will be your primary plan. Basic Medicare will pay second. Because of that, Medicare doesn’t even end up paying that much because employer plans are more substantial.”
In addition to being ineffective, enrolling in Medicare ends an employee’s eligibility to enroll in a health savings account, which has broader financial consequences.
An HSA is a tax-advantage medical savings account that allows employees to contribute funds that are not subject to federal income tax at the time of deposit, explained Whitney Johnson, an associate professor of business law at St. Cloud (Minnesota) State University. Employees can use the money they’ve saved tax free to pay the high deductibles associated with their employer-provided plans.
To be eligible for an HSA, an employee must be enrolled in a high-deductible health plan, Whitney said. Medicare is not a high-deductible health plan.
While socking away funds in an HSA and then enrolling in Medicare is an option, the uncertainty of future medical expenses makes that a risky decision.
“For most employees, it’s still in their best interest, while they’re still active, to stay on the employer’s plan,” Thompson said.
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