Flushing out the Medicare traps for employers

Medicare eligibility begins for most at age 65. The Social Security retirement age is currently 66 and is graduated to 67. This may mean that Medicare could start before retirement.

Employer-sponsored health plans for companies with fewer than 20 employees are in the same boat with the under-65 major medical plans commonly known as Obamacare. Employees that work for companies with fewer than 25 employees and are on the company health plan can keep their company-sponsored health plan only until 65. At age 65 those employees would leave the company plan and start their Medicare. Employers should be keenly aware of this and make sure their employees are aware of the transition.

Employees on company coverage where the companies have 20 or more employees have different rules. Those employees can keep their company plan; in most cases it would be a violation for employers to encourage or induce those employees to drop the company plan. That doesn't mean it's not a good idea.

Employees turning 65 need to "do the math" and compare their costs on the company plan to the costs of being on Medicare. Medicare is not free. Part A of Medicare is free if one has 40 quarters of work credit with Social Security. Part B is $148 and change for most. What few understand about this is that the $148 and change is only 25% of the Medicare Part B Premium cost. If an individual's annual income is above $87,000 then the $148 is adjusted incrementally upward to a maximum of $504 per month for incomes over $500,000.

Prescription Rx plans on Medicare are privatized and available with prices ranging from about $12 a month to over $100 a month depending on plan chosen. The same kind of income adjustment done with Part B is also done with the Medicare Part D Rx plans - up to an additional $76 on top of the plan's premium

On the other side of the ledger company plans do contribute toward the employee's plan costs and if you're lucky the employer may also kick in on the cost of your dependents - although not required to do so. One also needs to look compare the deductibles, out-of-pocket maximums, etc., to get a real sense of costs.

This is alphabet soup with all the plans and parts: Part A, Part B, Part C (also called Advantage plans), Part D; and, Supplement (also known as Medigap) plans A, B, D, F, G, K, L, M and N.

These conversations often initially show up in the human resources department and maybe HR will refer employees over to their insurance benefits adviser. Often with small companies that have no HR department this falls upon the employee to figure it out for themselves. Some will see their Medicare card with Part A on it and think they are all done. Unfortunately, there is no outpatient or almost Rx coverage with Part A.

Employers can alleviate many of these issues by talking with their group health-plan adviser, who can help prep their employees with good solid information and tools to get them through the transition and avoid some of the traps like failing to apply for Part B and Part D, skipping Medicare for company paid COBRA or dropping their group plan too soon.

• David Castillo is an insurance benefits adviser in the Chicago area for DaveSurance Inc.