Medicare and Medicaid for Working Individuals

Medicare and Medicaid for Working Individuals

Ann Hilton Fisher

AIDS Legal Council of Chicago

Excerpted from Fisher, Ann: Small Employers and the Health Insurance Needs of Employees with High Health Care Costs: A Need for Better Models, Employee Rights and Employee Policy Journal, vol 8, no.1, 2004.

The Medicare program plays an important role in helping to support the health care costs of Medicare beneficiaries working for small employers. Medicare benefits are available to three groups of individuals: retired individuals over age 65, disabled workers who have received Social Security Disability Insurance benefits for two years or more, and individuals needing kidney dialysis. These participants are all prone to high health care costs.

Although most Medicare participants are not in the workforce, many are. Kidney dialysis patients may be able to schedule their work around their dialysis, or their dialysis around their work. Retired workers may take a part-time job or start a new full-time career. Disabled workers receiving SSDI benefits may find an employer who will accommodate their disabilities or may benefit from medical advances that allow them to return to work. Although concerns for the long-term solvency of the Medicare trust fund have made it a secondary payer in most situations, the exceptions relate directly to the size of the employer. First, Medicare, unlike insurance obtained through high-risk pools, does not end if employer-based insurance is available,[1] so workers may choose to decline the employment-based coverage. Even when workers do elect to participate in the employer plan, Medicare coverage may remain primary.[2] Retired workers always retain Medicare as their primary payer if their employer has fewer than 20 employees.[3] For disabled workers returning to work the situation is even more favorable to small employers. In those situations Medicare remains the primary payer if the employer group is smaller than 100.[4]

This effectively means that for these employers, the small employee group no longer has to bear the hospitalization, laboratory, or physician costs for their elderly or disabled workers. The group plan then pays primarily for services, that may be offered under the employer plan but not available under Medicare. Since the addition of the Medicare Part D drug benefit, the employer plan bears even less of the health care costs for these employees.Retired workers maintain their Medicare coverage indefinitely. Their Medicare Part A coverage, which provides hospitalization insurance, is without charge. Workers must continue to pay the approximately $96 per month premium for Part B coverage (doctors and laboratories) but that premium is automatically deducted from the retirement check, resulting in a very high level of continued coverage.[5] Disabled workers may also maintain their Part A coverage without charge -- and their Part B coverage at the same charge-- for almost ten years after they return to work.[6] Beyond that, disabled workers may still choose to participate in Medicare by paying both Part A (currently $423 per month, reduced to $233 for disabled workers who have 30 or more quarters of covered employment) and part B premiums themselves.[7] In addition, workers who continue their Medicare Part D Prescription Drug Coverage must pay that premium, which varies depending on the plan chosen but averages approximately $31 per month.

One caution is appropriate with regards to the new emphasis on high-deductible plans coupled with Health Savings Accounts. Workers are not eligible for these accounts if they are eligible for any other health insurance, including Medicare. This means that workers who wish to participate in these plans have to affirmatively drop their Medicare coverage. This in turn puts most of the burden of their health care costs back on the employers’ plan.

The Medicaid program has also recently begun to address the needs of disabled workers in the workforce. Medicaid is the federal-state needs-based program that provides health care to aged, blind, or disabled persons who meet the program’s strict income and asset eligibility rules.[8] Medicaid recipients who joined the workforce traditionally lost Medicaid coverage quickly as their income rose above the eligibility standards, which were often substantially below even the federal poverty level, regardless of whether work-based insurance was available to them. But Social Security work-incentive programs have long allowed a few disabled Medicaid recipients to keep their Medicaid coverage as they rejoin the workforce, and recent amendments to the Medicaid Act give states the option of increasing Medicaid coverage to disabled workers.

The Social Security section 1619 programs, which have been in existence since 1981, allow SSI recipients to keep Medicaid benefits if they make up to a certain amount set by each state (ranging in 2008 from $24-53,000, but typically around $30-35,000annually) and need on-going health care to sustain their ability to work.[9] These programs provide substantial assistance to the disabled SSI recipients who are returning to work, but none to their employers, since program requirements make workers ineligible to continue their Medicaid coverage if other insurance is available.[10] They do, however, protect workers working in part-time positions or for employers who do not offer health insurance coverage.

More recently, however, both the 1997 Balanced Budget Act[11] and the 1999 Work Incentives Improvement Act[12] have allowed states to create Medicaid “buy-in” programs for disabled workers. These programs allow a much wider range of Medicaid recipients to “buy into” the state program even after increases in their wages would otherwise make them ineligible. States have wide latitude in developing the programs, and some have allowed workers to elect to participate in the buy-in programs even if their employers offered group insurance.[13] Since Medicaid provides extremely comprehensive coverage, including, in virtually all states, complete coverage for prescription drugs, and since the Medicaid premiums, especially for low-income workers, may be lower than the employee cost of a group plan, it is anticipated that some workers may choose to remain in the Medicaid program even if other insurance is available.

Important as the Medicare and the Medicaid programs are, it is important to note that they are not available to many workers who may have high health care costs. Although Medicare coverage extends to almost all seniors, only a small percentage of younger individuals with high health care costs participate in the Medicare program. Many younger people with severe disabilities, especially mental disabilities, may have never gained the years of work credits necessary to qualify for SSDI, and subsequently Medicare, benefits. Other people may have serious health problems that do not rise to the “severe and permanent” Social Security disability standard.[14] Because their condition may be expected to respond to treatment in less than twelve months, for example, many people with cancer cannot qualify as “disabled” under Social Security and Medicare rules.[15] Medicare likewise offers no protection for the family that suddenly has a premature baby requiring expensive neonatal care. And even if disability standards are met, there is a two-year waiting period for Medicare coverage (in addition to the five month waiting period for SSDI coverage)[16] so that a disabled person who is away from the work force for fewer than 29 months will not have Medicare coverage to bring to his or her new employer. Finally, even younger workers who have Medicare coverage risk losing it if Social Security determines that they are no longer disabled, since eligibility for continued participation is limited to persons who are working while disabled.

Medicaid eligibility is equally limited. Although individuals do not have to meet Social Security’s work history requirements to be eligible for Medicaid, they do have to meet the same disability standards.[17] The strict disability requirements, coupled with low income eligibility limits, mean that persons with high health care costs who are currently in the work force will almost never be eligible for Medicaid coverage.

There have recently been some modest attempts to extend Medicaid eligibility to groups that do not meet the strict Medicaid disability standards. The Medicaid buy-in programs allow states to propose plans to cover individuals who are either “pre-disabled,”(i.e., with health care conditions that will make them disabled if they are not able to access medical care) or who are “post-disabled,” (i.e., individuals who have benefited sufficiently from medical treatment that they no longer meet the federal definition of disabled). These options, if elected by a state that also allowed participation by workers who had group insurance available, would provide an insurance alternative for almost all disabled workers. Because of strict cost-neutrality requirements of the federal buy-in laws, however, only a handful of states are including this population in their Medicaid buy-in programs.[18]

[1] 42 U.S.C. § 1395b (2001).

[2] 42 U.S.C. § 1395y(b)(1)(A)(i)(II) (2001).

[3] 42 U.S.C. § 1395y(b)(1)(A)(ii) (2001).

[4] 42 U.S.C. § 1395y(b)(1)(B) (2001). The situation for the thousands of people who have Medicare because of end stage renal disease is somewhat different. Unlike retired and disabled Medicare participants, individuals who are eligible for Medicare coverage because of end stage renal disease may still be employed at the time they become eligible for Medicare coverage. For those beneficiaries who have access to work-based group health insurance, the private insurance is primary, regardless of the size of the employer group, but only for the first 30 months. After that time, Medicare becomes the primary payer regardless of work status. 42 U.S.C. § 1395y(b)(1)(B)(ii) (2001).

[5] 42 C.F.R. §§ 410.20, 410.22, 410.23 (2001)..

[6] 42 U.S.C. § 1395f(a)(2) (2001); 42 C.F.R. §§ 424.5(a)(4), 424.10-13 (2001).

[7] These figures, which change annually, are found on the Social Security Administration website, at

[8] 42 U.S.C. § 1382 (2001). For a detailed analysis of eligibility requirements, see Social Security Administration, A Desktop Guide to SSI Eligibility Requirements (visited February 15, 2002) < (which states that an eligible individual must have income below $531 a month for single adult or child or below $796 a month for a couple).

[9] 42 U.S.C. § 1382h (2001).

[10] 42 U.S.C. § 1382(e)(B) (2001).

[11] Balanced Budget Act of 1997, § 4714(a)(2), Pub. L. No. 105-33, 111 Stat.251 (1997).

[12] Ticket to Work and Work Incentives Improvement Act,Pub. L. No. 106-170, 113 Stat. 1860 (1999).

[13]Wisconsin Administrative Code, 103.03(h)(1)(g)..

[14] 20 C.F.R § 404.1520 (2001). People with diabetes, for example, may have high health care costs over many years, but will not generally be eligible for coverage until they suffer end organ damage, 20 C.F.R.Part 404, Subpart P, Appendix 1, Sec. 9.08

[15] 20 C.F.R. § 404.1520 (2001). See also Evans v. Secretary of Health & Human Serv., 820 F.2d 161, 164 (6th Cir. 1987) (denying benefits to lung cancer patient because failed to be a qualifying impairment).

[16]See 42 U.S.C. § 1395c (2001) (describing eligibility requirements of Social Security recipients under age 65).

[17] 42 U.S.C. § 1382 (2001).

[18]The status of state Medicaid waivers is a moving target as states submit, modify, and withdraw applications and as the Center for Medicaid and Medicaid Services (formerly the Heath Care Financing Administration) approves or disapproves them. For a current list of waivers, see