Employer and Medicare Coverage

Key Points

  • If you’re currently working for an employer with 20 or more employees and have health coverage through that employer, you can likely delay Medicare enrollment past age 65 without incurring penalties.

  • However, if your employer has fewer than 20 employees, Medicare becomes your primary coverage, and your employer plan becomes secondary. In this case, enrolling in Medicare on time is essential to avoid coverage gaps.

  • Also, be aware that retiree coverage, including COBRA, is not considered creditable coverage for Medicare purposes and does not prevent late enrollment penalties.

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If you’re 65 or older (or approaching 65) and plan to have both Medicare and employer coverage due to your active employment, there are a few key factors to consider.

You’ll likely have the option to keep your employer coverage, with Medicare working as either primary or secondary insurance depending on your employer size. It’s important to compare the cost of your current employer plan with what you’d pay if Medicare became your primary coverage.

Doing your research now can help you make the most cost-effective choice and avoid any potential late enrollment penalties. Please note: this guidance applies specifically to individuals 65 and older, as Medicare coordination rules are different for those under 65 and enrolled due to disability.

Current Employment Insurance

Active employer coverage indicates that you are still in active employment, not retired. In this situation, you retain the option to stay enrolled in your employer's group health insurance plan. Your Medicare benefits can coordinate with this coverage, and the coordination process varies based on your employer's size.

These regulations also extend to cases where your group health coverage is provided through your spouse's employer.​

Medicare and Employer Coverage - Employers with 20 or More Employees

If you are 65 or older, actively employed (not retired or on COBRA), and your employer has more than 20 employees, Medicare acts as a secondary payer—a process known as Medicare Secondary Payer (MSP). In this case, your employer group health plan pays first, and Medicare covers remaining eligible expenses.

Many individuals in this situation choose to enroll in Medicare Part A, since it’s premium-free for those with at least 10 years of work history. Part A can coordinate with your group plan to reduce out-of-pocket costs for hospital stays.

For example, if your employer plan has a $3,000 deductible, and the 2024 Medicare Part A hospital deductible is $1,632, enrolling in Part A could limit your hospital expenses to just $1,632, with Medicare covering the rest of your inpatient hospital costs.

The situation is different for Part B, which does involve monthly premiums. Because of this, most individuals working for a large employer choose to enroll in Part A only and delay Part B.

Important exception: If you’re contributing to a Health Savings Account (HSA) and plan to continue making contributions, do not enroll in Part A, as doing so will disqualify you from making further HSA contributions. More details on this are provided in the next section.

Enrolling in Medicare as Secondary Insurance Involves Expenses

Medicare Part B is no longer premium-free—your monthly premium is based on your income level. As a result, some individuals who are eligible for both Medicare and employer group health coverage choose to delay enrolling in Part B and Part D while they remain covered by their employer’s plan (or their spouse’s).

This decision can help avoid paying unnecessary premiums for Parts B and D, especially if the group health plan already includes outpatient coverage.

If you delay Part B while covered by a large employer plan, that coverage is considered creditable, meaning you won’t face late enrollment penalties when you eventually retire and enroll in Medicare. When your group coverage ends, your employer or insurance provider will issue a Creditable Coverage Letter. It’s crucial to keep this document, as you’ll need it to prove to Medicare that you maintained creditable coverage—protecting you from any penalties for late enrollment in Parts B or D.

What Occurs if You Retire and subsequently Return to Employment?

Moreover, individuals often inquire about the scenario where they retire, enroll in Part B, and subsequently secure new employment with employer insurance. In such cases, you have the option to cancel Part B. Upon retiring once again, you will have a second 6-month Open Enrollment window to acquire a Medigap plan without being subjected to health questions.

COBRA

Medicare coordinates differently with COBRA than it does with active employer coverage, and understanding this distinction is essential to avoiding costly penalties.

When you’re actively employed by a large employer, your group health insurance is primary, and Medicare serves as secondary. However, once you’re on COBRA, the roles reverse—Medicare becomes the primary payer, and COBRA becomes secondary.

If you have COBRA and become eligible for Medicare—typically at age 65—you must enroll in Medicare Parts A and B during your Initial Enrollment Period (IEP). In most cases, COBRA coverage ends once Medicare begins. Failure to enroll during your IEP could result in a lifetime Part B late enrollment penalty.

That said, your dependents may continue on COBRA for up to 36 months, even if your COBRA ends due to Medicare enrollment.

If you continue working past age 65 and then retire, you may choose to enroll in COBRA. However, it’s critical to enroll in Part B no later than your 8th month on COBRA coverage, regardless of whether COBRA extends beyond that period. Since Medicare becomes the primary payer, COBRA may not cover your medical costs if you’re not enrolled in Part B.

Delaying enrollment beyond the 8th month can lead to a permanent Part B penalty and a delay in coverage, as you would then need to wait for the next General Enrollment Period.

Exception for ESRD: If you have End-Stage Renal Disease (ESRD), COBRA acts as the primary payer for the first 30 months, during a special coordination period with Medicare. After this period, Medicare becomes primary.

The Choice of Selecting Medicare as Your Primary Insurance

If you’re covered by a large group employer health plan, you have another option: you can choose to leave your employer coverage and have Medicare as your primary insurance, often paired with a Medigap plan. This route can lead to significant savings for both you and your spouse by potentially reducing deductibles and eliminating copays for doctor visits.

The cost-effectiveness of this choice depends on several factors, including your monthly payroll deductions, plan deductible, copay structure, and medication needs. If you’re married and your spouse is younger and not Medicare-eligible, be sure to consider the cost of individual health insurance for your spouse when evaluating your options.

Your Senior Solutions agent can help you assess whether enrolling in Part B now or delaying it is the best decision for your situation. In many cases, we recommend staying with your employer plan if it proves to be the most practical and cost-effective solution.

Medicare and Employer Coverage - Employers with Less than 20 Employees

If you’re 65 or older and your employer has fewer than 20 employees, Medicare becomes your primary coverage, and your employer plan acts as secondary. In this case, it’s critical to enroll in both Part A and Part B, as Medicare pays first. While some employer plans may temporarily pay claims without requiring Part B, this is not guaranteed. Insurance companies can change their coordination policies at any time, which could leave you responsible for expenses that Medicare Part B would normally cover.

To avoid unexpected costs, it’s strongly recommended to enroll in both Part A and Part B when Medicare is the primary payer due to small employer coverage.

When it comes to prescription drug coverage, you may be able to delay enrolling in a Part D plan without penalty if your employer coverage includes creditable drug benefits. However, it’s wise to compare costs. In some cases, it may be more cost-effective to drop the employer plan entirely and pair Original Medicare with a Medicare Supplement (Medigap) plan for your secondary coverage.

The HSA Exception

An important exception applies to both large and small employer coverage when it involves an HSA-compatible health plan. If you’re enrolled in a qualified high-deductible health plan (HDHP) and then enroll in any part of Medicare, you are no longer eligible to contribute to a Health Savings Account (HSA).

Once Medicare coverage is active, HSA contributions—both personal and employer—must stop. Continuing to contribute while enrolled in Medicare can result in tax penalties.

For those working at a small employer, enrolling in Parts A and B at age 65 is typically required to avoid late enrollment penalties. If you plan to keep your HSA-qualified employer plan, you’ll need to stop contributing to your HSA once Medicare begins.

However, if your spouse is on your group plan and has not enrolled in Medicare, they may still continue making HSA contributions as long as they meet all eligibility requirements.

FAQ

Is it possible for my employer to cover my Medicare Part B premium?

Employers typically do not make direct payments to cover your Medicare Part B premiums when you’re billed by Social Security.

However, they can offer reimbursement through a Section 105 Medical Reimbursement Plan. This type of plan allows employers to set aside tax-free funds for employees to use toward qualified health and dental insurance expenses—including Medicare Part B premiums.

A common form of a Section 105 plan is a Health Reimbursement Arrangement (HRA). HRAs are specifically designed to reimburse eligible employees for their individual health insurance premiums and other qualified medical expenses, providing a flexible and tax-advantaged way to help offset healthcare costs.

Is it possible for your employer to cover your Medigap premium?

At Tessa Crider Insurance, we’re often asked whether an employer can cover the cost of a Medigap plan. While the idea may seem beneficial for both you and your employer—since group coverage for older employees can be expensive, and Medicare with a Plan F or G Medigap policy may offer more comprehensive benefits—it’s important to understand that this arrangement is generally prohibited under CMS rules.

If you choose Medicare as your primary coverage instead of your employer’s group health plan, your employer cannot directly pay your Medigap premiums on an individual basis. The only exception is if the employer offers a Section 105 Medical Reimbursement Plan for all eligible employees.

A Section 105 plan allows the employer to reimburse premiums for individual health insurance—including Medicare Parts A and B, as well as Medigap plans—on a tax-free basis. Eligible employees can use the funds to cover qualified healthcare expenses.

If you’re considering this option, it’s a good idea to ask your employer whether a Section 105 reimbursement plan is in place.

Is it possible for my employer to remove me from my group health insurance once I reach the age of 65?

Employers cannot legally require actively working employees to drop their group health coverage and enroll in Medicare. The choice to leave the employer plan and use Medicare as your primary insurance is entirely voluntary and cannot be enforced by your employer.

However, if you’re on retiree coverage from a former employer and are no longer actively working, the rules are different. Employers are not obligated to offer retiree coverage beyond age 65. If coverage is provided, your benefits typically change once you become Medicare-eligible, with Medicare becoming your primary insurance and the retiree plan acting as secondary coverage.

Coverage options and costs may also shift at age 65. For example, if your former employer offers a Medicare Advantage plan for retirees, you’ll need to decide whether to enroll in it or opt for Original Medicare instead. When making this choice, consider factors like monthly premiums, prescription drug coverage, and whether you need to provide insurance for a younger spouse.

Is it possible to enroll in a Medigap plan while having coverage from a large employer just for added assurance?

Purchasing a Medigap plan while you have large group employer coverage would be an unnecessary expense. Medigap only works when Medicare is your primary insurance.

When applying for a Medigap policy, the insurance company will ask about your employment status. If you’re covered by a large employer group plan, they may decline your application, recognizing that the plan won’t provide any real benefit in your current situation.

In most cases, Medicare combined with employer coverage already offers adequate protection, making a Medigap plan redundant until Medicare becomes your primary payer.

Retiree Coverage

If your company provides retiree coverage once you have ceased active employment, Medicare takes precedence over that coverage. Consult with the administrator of your retiree coverage to ascertain the associated costs. If the costs are substantial, you may contemplate transitioning from retiree coverage to a combination of Medigap and Part D drug plan.

Key Takeaways

  • Even if your employer coverage is considered creditable, you still have the option to opt out and choose Medicare as your primary insurance. The decision should be based on which option is more cost-effective for your specific needs.

  • Also, if you’re contributing to a Health Savings Account (HSA), be aware of the timing requirements for stopping contributions. This depends on whether you defer Medicare enrollment beyond your Initial Enrollment Period. Planning ahead can help you avoid tax penalties and ensure a smooth transition.

  • For personalized guidance on the best time to enroll in Medicare, feel free to contact our team at (386) 288-2753. Our assistance is completely free.

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