For many small employers, an employee becoming eligible for Medicare raises an important question: Can we continue helping that employee with medical costs even after Medicare becomes their primary coverage?
In the right circumstances, the answer is yes.
A properly designed Health Reimbursement Arrangement (HRA) can give an eligible employer a structured way to reimburse qualifying Medicare-related expenses instead of simply providing additional taxable compensation.
For smaller employers, this can create an attractive combination: employees receive meaningful help with medical expenses while the employer maintains control over their benefit budget.
But employers should not implement Medicare reimbursement informally. Employer size, employee status, Medicare Secondary Payer rules, plan design, documentation, and reimbursement procedures all matter.
What Is a Medicare HRA?
Medicare HRA is a useful way to describe an employer-funded Health Reimbursement Arrangement designed to reimburse qualifying healthcare expenses for Medicare-eligible participants.
An employer, not the employee, funds an HRA. When applicable requirements are satisfied, an HRA can provide tax-free reimbursement of qualifying healthcare expenses.
The IRS confirms that HRAs can be integrated with Medicare when the applicable conditions are met.
Depending upon the type of HRA and how the plan is written, eligible Medicare-related expenses may include premiums associated with:
- Medicare Part B
- Medicare Advantage, or Part C
- Medicare Part D
- Medicare supplemental, or Medigap, coverage
- Other eligible medical expenses permitted under the plan
The specific expenses that can be reimbursed should always be determined by the governing plan documents and applicable tax and benefits rules.
Why the 20-Employee Threshold Is So Important
This is where Medicare HRA conversations can become more complicated.
For employees age 65 or older who have employer group health coverage because of current employment, federal Medicare Secondary Payer rules generally apply to employers with 20 or more employees. Federal regulations state that an employer has 20 or more employees when it has 20 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year. eCFR.gov
Importantly, employers should not assume this is simply a count of full-time benefit-eligible employees.
For purposes of the working-aged Medicare Secondary Payer rules, businesses need to evaluate their actual employee count and circumstances carefully. CMS guidance specifically addresses the 20-or-more-employees requirement.
For an active employee age 65 or older at an employer subject to the 20-or-more rule, the employer’s group health plan is generally primary, and Medicare is secondary. Employers are also restricted from taking an employee’s Medicare entitlement into account in ways prohibited by the Medicare Secondary Payer rules.
That distinction is exactly why Flyte’s existing Medicare HRA materials focus on employers with fewer than 20 total employees.
Why Would a Small Employer Consider a Medicare HRA?
For the right employer, a Medicare HRA can solve a very useful benefits problem.
Imagine a 12-person company with several long-term employees approaching or already past age 65.
The employer wants to keep contributing toward healthcare expenses but does not necessarily want to increase taxable wages or manage an unnecessarily complicated health benefit.
A Medicare HRA may provide another approach.
- The employer controls the contribution: Rather than committing to an open-ended healthcare expense, the employer sets the reimbursement amount based on the plan design. This makes the benefit easier to incorporate into an annual compensation and benefits budget.
- The employee gets help with real Medicare expenses: For an employee already paying Medicare-related premiums, the benefit is easy to understand. Instead of receiving extra taxable compensation and then paying healthcare expenses personally, the employee may be able to receive tax-free reimbursement for qualifying expenses through the HRA.
- It can help retain experienced employees: Employees are working longer, and turning 65 does not necessarily mean retiring. A carefully designed benefit can demonstrate that the employer continues to value employees after their healthcare needs change. The conversation shifts from: “You’re on Medicare now, so our benefit no longer applies to you.” To: “You’re moving to Medicare. Let’s look at the benefit structure available to support you.” That is a fundamentally better employee experience.
A Medicare HRA Isn’t the Same Thing as an ICHRA
This distinction is particularly important.
An Individual Coverage HRA (ICHRA) is another type of HRA and can also integrate with Medicare under federal rules. The IRS specifically recognizes integration of an ICHRA with individual health insurance or Medicare when applicable requirements are satisfied. But employers should not simply use “ICHRA” and “Medicare HRA” interchangeably.
The right arrangement relies on factors including:
- Employer size
- Whether the individual is actively employed or retired
- Whether other group coverage is offered
- Medicare eligibility
- The employer’s overall benefits strategy
- Which employees the employer intends to cover
- Applicable Medicare Secondary Payer rules
The goal isn’t simply to find a way to reimburse a premium. It’s to establish the correct reimbursement arrangement for the employer’s situation.
Medicare HRA vs. Simply Giving an Employee More Money
An employer might wonder why it can’t simply increase an employee’s paycheck by the amount of the employee’s Medicare premium.
It can certainly provide additional taxable compensation, but that is fundamentally different from establishing a formal HRA.
An HRA creates a defined employee benefit with rules governing eligibility and eligible reimbursements. Flyte’s HRA administration approach addresses plan documentation, claims adjudication, reimbursement processing, employee communications, and compliance.
That framework is important because healthcare reimbursement should not be handled as an informal side arrangement between an employer and an employee.
Don’t Forget About Other Medicare Secondary Payer Rules
The familiar 20-employee threshold applies to the working-aged rules, but it isn’t the only Medicare Secondary Payer consideration.
For example, CMS guidance separately addresses:
- Medicare eligibility based on disability
- Large group health plans and the 100-employee threshold
- End-Stage Renal Disease (ESRD)
- Coordination periods and other special situations
Additional information is available from CMS.gov
This is why an employer should not make a Medicare reimbursement decision based solely on an employee turning 65.
The facts matter.
Administration Matters as Much as Plan Design
Once an employer determines a Medicare HRA is appropriate, the next challenge is administering it correctly.
That means establishing the plan, defining eligible expenses, communicating the benefit to participants, collecting appropriate substantiation, processing claims, and issuing reimbursements according to the plan.
This is where working with an experienced HRA administrator can create a meaningful effect.
At Flyte HCM, we don’t sell employees their Medicare coverage. We focus on the benefit administration and compliance structure behind the reimbursement arrangement.
Our HRA administration approach includes claims submission, reimbursement processing, compliance support, account visibility, employee education resources, and mobile access through the Flyte Benefits App.
Is a Medicare HRA Right for Your Company?
A Medicare HRA may be worth exploring if you are a small employer with Medicare-eligible employees and want to continue helping with their medical costs.
Before implementing one, start with a few basic questions:
- How many total employees does the company have?
- Is the employee actively working or retired?
- Why is the individual eligible for Medicare?
- What health benefits does the employer currently offer?
- What Medicare expenses does the employer want to reimburse?
- What monthly or annual contribution does the employer want to provide?
- How will claims, substantiation, reimbursements, and plan compliance be administered?
Those answers help determine whether a Medicare HRA, ICHRA, another HRA strategy, or a different benefits approach makes the most sense.
The Bottom Line
Medicare eligibility doesn’t necessarily mean an employer’s contribution toward an employee’s healthcare has to disappear.
For employers that meet the applicable requirements, a Medicare HRA can deliver a structured way to help employees with qualifying Medicare expenses while giving the employer greater control over its benefits budget.
The key is getting the structure right.
Employer size, Medicare Secondary Payer rules, eligibility, reimbursable expenses, documentation, and administration must all work together.
Have employees approaching Medicare eligibility? Let’s talk before deciding your only choices are to continue the existing group arrangement or end the employer contribution altogether. Flyte HCM can help you determine whether a Medicare HRA or another reimbursement
