Like the preceding course, this course also addresses the concept of continuation of coverage. However, unlike the prior course’s focal point, which was on full Social Security, this course looks at Medicare-only situations. We felt that separating the concept of continuation of coverage into two distinct areas (Social Security, Medicare) was important because the proper application of the continuation of coverage rules can cause some confusion when dealing with Medicare-only situations.

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    1. How does continuation of coverage apply in Medicare-only situations?
    2. What is Medicare-only Coverage?
    3. What is MQGE?
    4. Is there a difference between Medicare Qualified Government Employees and other Social Security and Medicare covered employees?
    5. How is Medicare coverage obtained for State and local government employees?
    6. I thought Medicare was mandatory for all employees?
    7. Are there exclusions to Mandatory Medicare?
    8. How do I know if I'm covered for Medicare?
    9. Are there exceptions to continuation of coverage in Mandatory Medicare situations?
    10. If my employer reorganizes (i.e., such as in an annexation), does the continuing employment exception apply?
    11. If I am receiving Social Security benefits, am I required to pay Medicare tax if I'm rehired?
    12. Example scenarios: Applying the continuing employment exception and continuation of coverage in Medicare-only situations.

 

1.  How does continuation of coverage apply in Medicare-only situations?

Continuation of coverage in Medicare-only situations is similar to continuation of coverage rules for Social Security, as we discussed in the preceding course. Continuation of Coverage (and Section 218 Agreements for full Social Security Coverage). Once coverage is provided for State and local government employees, it generally continues unless an event occurs which results in a termination of the coverage.

However, the proper application of the continuing employment exception and the continuation of coverage rules can cause some confusion when dealing with the Medicare (HI-only) divided referendum vote of a state employee who transfers between agencies and entities within the state government system. The same holds true for the divided Medicare (HI-only) referendum vote of a political subdivision employee who transfers between agencies and entities of the same political subdivision.

Let us first look at some basic concepts associated with Medicare-only coverage before we proceed though. Please refer to the next few questions.


2.  What is Medicare-only Coverage?

Medicare Hospital Insurance (HI) only coverage is voluntarily available to state and local government employees who have been in continuous employment with the same employer since before April 1, 1986, and are members of a public retirement system—AND are not covered by a Section 218 Agreement. Employees who were hired prior to April 1, 1986, and who are not currently paying into Medicare, may not make Medicare contributions if the employee is not covered for Medicare under a Section 218 Agreement.


3.  What is MQGE?

MQGE is Medicare Qualified Government Employment. Employees whose services are not covered for Social Security, but are required to pay for Medicare-only coverage are referred to as “Medicare Qualified Government Employee” (MQGE). MQGE was available to Federal employees beginning in 1983, and for certain state and local employees beginning in 1986.

For tax years 1991 and later, Social Security and Medicare wages are listed separately for tax reporting purposes.


4.  Is there a difference between Medicare Qualified Government Employees and other Social Security and Medicare covered employees?

Not really. In respect to benefit eligibility, MQGE employees need the same number of government employment quarters of coverage (40 credits) to qualify for Medicare as they need to be insured for Social Security benefits.


5.  How is Medicare coverage obtained for State and local government employees?

If a State has a Section 218 Agreement or modification covering services in a position, then Medicare coverage is automatically included with the Social Security. However, if the position is not covered by an agreement or modification and the employee IS NOT a member in a qualifying retirement system, then the position is mandatorily covered. If the position is not covered by an agreement or modification and the employee IS a member of a qualifying retirement system, then a Medicare-only modification will be necessary for all employees hired before April 1, 1986. The same referendum and modification rules for Social Security and Medicare coverage under Section 218 apply to voluntary Medicare HI-only coverage.


6.  I thought Medicare was mandatory for all employees?

Medicare is mandatory for all employee hired April 1, 1986 and after—REGARDLESS of their eligibility in a public retirement system. Thus, once all pre-April 1, 1986 hires retire, then all State and local government employees will be covered for Medicare—either through Mandatory Medicare or through an agreement or modification. For employees hired prior to April 1, 1986, who are also members of a retirement system, Medicare coverage can only be obtained through a Section 218 Agreement or modification.


7.  Are there exclusions to Mandatory Medicare?

Yes, the following services are not subject to mandatory Medicare coverage even though the services are performed by an employee hired after March 31, 1986:

  • Services performed by individuals hired to be relieved from unemployment. (This does not include many programs financed from Federal funds where the primary purpose is to give the employee work experience or training.)
  • Services performed in a hospital, home or other institution by a patient or inmate thereof as an employee of a State or local government employer.
  • Services performed by an employee on a temporary basis in case of fire, storm, snow, earthquake, flood or other similar emergency.
  • Services performed by non-resident aliens with F-1, J-1, M-1 and Q-1 visas.
  • Services in positions compensated solely by fees that are subject to SECA (Self-Employment Contributions Act), unless Section 218 Agreement covers these services.
  • Services performed by a student enrolled and regularly attending classes at the school, college or university where they are working, unless Section 218 Agreement covers student services.
  • Services performed by an election worker or official whose pay in a calendar year is less than the amount mandated by law, unless Section 218 Agreement covers election workers. To find the coverage status of election workers for each State, click the Election Worker Coverage Chart (http://www.ssa.gov/slge/ElectionWorker_2005_Nov.doc).
  • Services that would be excluded if performed for a private employer because it is not work defined as employment under Section 210(a) of the Social Security Act, unless Section 218 Agreement covers certain agricultural services.

8.  How do I know if I’m covered for Medicare?

There are a number of ways to identify if you are paying Medicare. The most obvious way is to look on your paycheck statement. If there is a deduction under Medicare, then your employer is withholding. Another way to tell is if Medicare box on your W-2 has been completed (see below graphic). You can also request a Social Security Statement from SSA at http://www.ssa.gov/mystatement/.

Update: In light of the current budget situation, we have suspended issuing Social Security Statements. You may be able to estimate your retirement benefit using our online Retirement Estimator.


9.  Are there exceptions to continuation of coverage in Mandatory Medicare situations?

Services performed after March 31, 1986, by an employee who was hired by a State or political subdivision employer before April 1, 1986, are exempt from mandatory Medicare coverage if the employee is a member of a public retirement system and meets all of the following requirements:

  • Employee was performing regular and substantial services for remuneration for the state or political subdivision employer before April 1, 1986;
  • Employee was a bona fide employee of that employer on March 31, 1986;
  • Employment relationship with that employer was not entered into for purposes of avoiding the Medicare tax; and
  • Employment relationship with that employer has been continuous since March 31, 1986.

An employee hired before April 1, 1986 by a State employer and who transfers after March 31, 1986, to another State employer of the same State qualifies for the continuing employment exception, provided the transfer was made without a termination of the employee’s overall employment relationship with that State. The same rule applies to an employee hired before April 1, 1986, by a political subdivision employer, who transfers after March 31, 1986, to another employer of the same political subdivision.

However, an employee hired before April 1, 1986, does not qualify for the continuing employment exception if after March 31, 1986, the employee transfers from a State employer to a political subdivision employer, or from a political subdivision employer to a State employer. Likewise, an employee does not qualify for the exception if the employee transfers from a political subdivision employer in one political subdivision to a political subdivision employer in a different political subdivision.


10.  If my employer reorganizes (i.e., such as in an annexation), does the continuing employment exception apply?

In the case of the creation of an entirely new entity, the continuing employment exception does not apply. The exception requires the continuity of both the employer and the employee.  Thus, all employees of the new entity would be new hires for purposes of the Medicare-only tax.

If the reorganization is the result of an annexation, only those employees who are employed in the ANNEXED district would be new hires. Those employees who were and who continue to be employed in the on-going part of the entity would be covered by the continuing employment exception.


11.  If I am receiving Social Security benefits, am I required to pay Medicare tax if I’m rehired?

Any person who is rehired after April 1, 1986, regardless whether they are returning to work from retirement or any other circumstance is covered for Mandatory Medicare and required to pay Medicare tax.


12.  Example scenarios: Applying the continuing employment exception and continuation of coverage in Medicare-only situations.

We have discussed many aspects of continuation of coverage and the continuing employment exception, for full Social Security, but let’s take a look at Medicare-only situations. Questions have been raised about the proper application of the continuing employment exception and the continuation of coverage rules when dealing with the Medicare (HI-Only) divided referendum vote of a State employee who transfers between agencies and entities within the State government system.  There is a similar concern for the divided Medicare (HI-only) referendum vote of a political subdivision employee who transfers between agencies and entities of the same political subdivision.

To properly answer the following questions it is important to delineate a few factors and determine what role they play in each of the scenarios below. The principal factors to consider are:

    • Was the individual a bona fide employee and performing regular and substantial services for the State or political subdivision employer before 04/01/86?
      • Was the transfer from one State employer to another State employer of the same State made without termination of the overall employment relationship with the State?  For an individual who transferred from a political subdivision employer to another employer of the same political subdivision, was the transfer made without termination of the overall employment relationship with the political subdivision? 
      • Continuing employment exception, which exempts the individual from the mandatory Medicare provisions (SL 50001.520)
      • Continuation of coverage (SL 30001.380)

The scenarios below deal with employees who voted in Medicare-only referendums. As far as employment for the original government employer is concerned, the individuals discussed in the scenarios will be considered employees who were hired and performing substantial services for the employer before 04/01/86. So, it will be presumed that in each of the scenarios below the answer to Factor 1 is “Yes.”

Scenario 1: Ms. Smith was an employee of a State agency (not an institution of higher learning) who voted for Medicare coverage in the referendum.  She later transferred to a job in another State agency (not an institution of higher learning) but under the same retirement system as her former position.  Does Ms. Smith carry her Medicare referendum vote?

In this case, since (Factor 1) is fulfilled, one should then determine if the continuing employment exception (Factor 3) applies.  According to the tenets of the continuing employment exception, an employee qualifies for the continuing employment exception when (a) transferring from one State employer to another employer of the same State and (b) the transfer did not result in the termination of the overall employment relationship with the State.  Whether such a transfer between agencies of the same State causes a termination of the overall employment relationship must be determined by the State.

Scenario 1, as presented, does fulfill (Factor 1); but it is unclear whether it would fulfill (Factor 2).

If the transfer did terminate the overall employment relationship with the State, then the continuing employment relationship exemption would not apply, and Ms. Smith would be considered a “new hire” as far as the current State employer is concerned and would fall under the mandatory Medicare provisions.

If the transfer did not terminate the overall employment relationship with the State, then (Factor 2) would be fulfilled and the continuation of employment exception to mandatory Medicare would apply.  In other words, Ms. Smith would not fall under the mandatory Medicare provisions.

If the employee has fulfilled the requirements for the continuing employment exception, then we look at the continuation of coverage aspects. 

In Scenario 1, both former and current State agency employers are under the same retirement system, and since neither is an institution of higher learning, the retirement system employees of both agencies would also have received Medicare coverage via the same referendum (or same deemed retirement system) – see SL 30001.321.   Thus, Ms. Smith would then carry her vote into the new position. 

Scenario 2: Mr. Smith was an employee of a State agency who voted for Medicare coverage in the referendum.  He later transferred to a job in another State agency but under a different retirement system from that of his former position. Does Mr. Smith carry his Medicare referendum vote?

Since (Factor 1) is fulfilled, one should then determine if the continuing employment exception (Factor 3) applies.  According to the tenets of the continuing employment exception, an employee qualifies for the continuing employment exception when (a) transferring from one State employer to another employer of the same State and (b) the transfer did not result in the termination of the overall employment relationship with the State.  Whether such a transfer between agencies of the same State causes a termination of the overall employment relationship must be determined by the State.

Scenario 2, as presented, does fulfill (Factor 1); but it is unclear whether it would fulfill (Factor 2).

If the transfer did terminate the overall employment relationship with the State, then the continuing employment relationship exemption would not apply, and Mr. Smith would be considered a “new hire” as far as the current State employer is concerned and would fall under the mandatory Medicare provisions.

If the transfer did not terminate the overall employment relationship with the State, then (Factor 2) would be fulfilled and the continuation of employment exception to mandatory Medicare would apply.  In other words, Mr. Smith would not fall under the mandatory Medicare provisions. 

If the employee has fulfilled the requirements for the continuing employment exception, then we look at the continuation of coverage aspects. 

Although both former and current employers are government agencies of the same State, each agency has a different retirement system providing coverage for their respective employees.   With his transfer to the current employer, Mr. Smith is now under the jurisdiction and rules of the retirement system of the current employer; thus, his Medicare referendum vote in the retirement system of the former employer would not carry over to the new position.   If Mr. Smith meets the continuing employment exception, he would not have Medicare coverage unless the current employer’s retirement system is covered for Social Security by a Section 218 agreement or has provided Medicare-only coverage for pre-April 1, 1986 hires through a Medicare-only referendum.

Scenario 3: Ms. Smith was a retirement system covered employee of a State Institution of Higher Learning (State University) who voted for Medicare coverage in the referendum.  The State University was covered for Medicare as a “deemed retirement system group” separate from the rest of the State government positions. Subsequently, Ms. Smith moved to a non-State University position with a State Agency that was covered by the same retirement system.  Employees in both positions are State employees.  Since the State University was originally covered as a “deemed retirement system group” separate from the rest of the positions of the same retirement system, does the Ms. Smith carry her vote?

Since (Factor 1) is fulfilled, one needs to determine whether the continuing employment exception (Factor 3) applies. According to the tenets of the continuing employment exception, an employee qualifies for the continuing employment exception when (a) transferring from one State employer to another employer of the same State and (b) the transfer did not result in the termination of the overall employment relationship with the State.  Whether such a transfer between agencies of the same State causes a termination of the overall employment relationship must be determined by the State.

Scenario 3, as presented, does fulfill (Factor 1); but it is unclear whether it would fulfill (Factor 2).

If the transfer did terminate the overall employment relationship, then the continuing employment relationship exemption would not apply, and Ms. Smith would be considered a “new hire” as far as the current State employer is concerned and would fall under the mandatory Medicare provisions.

If the transfer did not terminate the overall employment relationship with the State, then (Factor 2) would be fulfilled and the continuation of employment exception to mandatory Medicare would apply.  In other words, Ms. Smith would not fall under the mandatory Medicare provisions.

If the employee has fulfilled the requirements for the continuing employment exception, then we look at the continuation of coverage aspects.

In Scenario 3, both former State University and current State Agency employers are under the same retirement system, but in this situation the State Institution of Higher Learning (State University) obtained Medicare coverage as a “deemed retirement system group.” This was separate from the rest of the State government agencies covered by the same retirement system. Medicare coverage was obtained for the State University via a separate Medicare referendum from the rest of the State government – as permitted in SL 30001.321 and SL 30001.331.

At this point, one would need to refer to SL 30001.334(F)(2), Change in Employment, which states the following. If the retirement system which was divided was not the entire system, a member of a deemed retirement system who transfers to another deemed system is a “new” member and is compulsorily covered…If a member of a deemed retirement system transfers to a position under a retirement system which has not been covered, a referendum must be held before he/she can be covered.

As the result of a coverage referendum (either divided or favorable majority), “new” members of the retirement system are compulsorily covered. In a divided referendum situation, a transferee whose former position was in another deemed retirement system would be treated as a “new” member of the retirement system in their current position with the State and placed in the “yes” group (provided a coverage referendum has been held) regardless of how he/she had voted in their previous position with the State. If the retirement system of the current employer has not yet obtained Medicare coverage for pre-April 1, 1986 hires, then the transferee would no longer have Medicare coverage.

Since it has been established that the retirement system positions at the State University were covered for Medicare as a “deemed retirement system” separate from the retirement system positions in the rest of the State government, Ms. Smith would not carry her vote when transferring from a retirement system position at the State University to a retirement system position at another State government agency. In her current position with the State Agency, Ms. Smith would either be given Medicare coverage if there has been a favorable majority or divided vote Medicare referendum for pre- April 1, 1986 hires of the State Agency retirement system; or she would lose Medicare coverage if the State Agency retirement system does not have Medicare coverage for pre-April 1, 1986 hires.    

Scenario 4: Same as Scenario 3, both current and former employers are entities within the same State government, except each entity is covered by a different retirement system. Mr. Smith was a retirement system covered employee of a State Institution of Higher Learning (State University) who voted for Medicare coverage in the referendum.  The State University was covered for Medicare as a “deemed retirement system group” separate from the rest of the State government positions. Subsequently, Mr. Smith moved to a non-State University position with a State Agency that was covered by a different retirement system.  Employees in both positions are State employees. Does the Mr. Smith carry his vote?

Scenario 4 actually resembles Scenario 2.  As in Scenario 2, we first must consider whether the continuing employment exception applies.  According to the tenets of the continuing employment exception, an employee qualifies for the continuing employment exception when (a) transferring from one State employer to another employer of the same State and (b) the transfer did not result in the termination of the overall employment relationship with the State.  Whether such a transfer between agencies of the same State causes a termination of the overall employment relationship must be determined by the State.

Scenario 4, as presented, does fulfill (Factor 1); but it is unclear whether it would fulfill (Factor 2). 

If the transfer did terminate the overall employment relationship, then the continuing employment relationship exemption would not apply, and Mr. Smith would be considered a “new hire” as far as the current State employer is concerned and would fall under the mandatory Medicare provisions.

If the transfer did not terminate the overall employment relationship with the State, then (Factor 2) would be fulfilled and the continuation of employment exception to mandatory Medicare would apply.  In other words, Mr. Smith would not fall under the mandatory Medicare provisions. 

If the employee has fulfilled the requirements for the continuing employment exception, then we look at the continuation of coverage aspects. 

Although both the former employer (the State University) and the current employer (State Agency) are government agencies of the same State, each agency has a different retirement system providing coverage for their respective employees.   With his transfer to the current employer, Mr. Smith is now under the jurisdiction and rules of the retirement system of the current employer; thus, his Medicare referendum vote in the retirement system of the former employer would not carry over to the new position.   If Mr. Smith meets the continuing employment exception, he would not have Medicare coverage unless the current employer’s retirement system is covered for Social Security by a Section 218 agreement or has provided Medicare-only coverage for pre-April 1, 1986 hires through a Medicare-only referendum.

Scenario 5: Ms. Smith, an employee of the State, moves to a political subdivision or vice versa; both former and current positions are covered by the same retirement system.  Does the Ms. Smith carry her vote? 

In Scenario 5, one must first consider whether the continuing employment exception applies. One requirement of the continuing employment exception is that the employment relationship with the government employer has not terminated after 03/31/86 (P.L. 99-272, Section 13205). Scenario 5 presents Ms. Smith moving from State government employment to a political subdivision government position or vice versa.  To move from State government employment to political subdivision employment (or vice versa) requires the termination of the employment relationship with the former employer, despite the fact that the Ms. Smith is moving to positions covered by the same retirement system.  The continuing employment exception would not be met; Ms. Smith would be considered a “new hire;” and, thus, mandatory Medicare would apply in the new position (SL 50001.520). 

Scenario 6: Mr. Smith, an employee of the State moves to a political subdivision or vice versa; the former and current positions are covered by different retirement systems.  Does he carry his vote?

No, Mr. Smith would not carry his vote.  As in Scenario 5, the employment relationship with the government employer terminated after 03/31/86.   SL 50001.520 expressly states that an employee who transfers from a State employer to a political subdivision employer (or vice versa) becomes a “new hire” of the governmental entity he/she is now working for.  The continuing employment exception would not be met, and Mr. Smith would either be mandatorily covered for Medicare or compulsorily covered if the retirement system under which he now works has Social Security coverage based on a Section 218 agreement.