If you are currently 65 years old or will be turning 65 soon, and you have both Medicare and Employer Coverage due to your active employment, there are several considerations that you need to take into account.
There are likely various options available to you to maintain your employer insurance while Medicare works in conjunction with that coverage. It is important to assess the expenses associated with your employer coverage and compare them to the potential cost of transitioning to Medicare as your primary insurance. Conducting thorough research will assist you in determining which coverage option is the most financially advantageous. Additionally, this research can help you avoid any penalties for enrolling in Medicare late, whenever feasible. Please note that the information provided below pertains specifically to individuals aged 65 or older. (Different Medicare coordination rules apply to individuals under the age of 65 who are on Medicare due to disability.)
Active Employer Coverage
If you are currently employed and not retired, you are considered to have active employer coverage. In this situation, you have the option to continue being covered by your employer’s group health insurance plan. Your Medicare benefits can work in conjunction with this coverage, but the coordination process may vary depending on the size of your employer. The aforementioned guidelines also apply if your group health coverage is provided through your spouse’s employer.
Medicare and Employer Coverage – Large Companies 20+ Employees
If you are 65 years old or older and actively working for an employer with more than 20 employees, Medicare will serve as a secondary payer. This means that your group plan will be the primary payer, covering the costs first, and Medicare will cover the remaining expenses. It is important to note that this applies to individuals who are still working and not retired or on COBRA.
Most active employees with group coverage choose to enroll in Part A of Medicare because it is premium-free if they have worked for at least ten years. Part A can also help coordinate and reduce your costs in the event of a hospital stay. For instance, if your employer health plan has a $3,000 deductible and the Medicare Part A hospital deductible for 2024 is $1,632, having both your employer insurance and Part A will limit your out-of-pocket expenses to $1,632 for inpatient hospital services. Medicare will cover the remaining costs for any Part A services.
Part A is usually the preferred choice for most individuals when working for a large employer, as it does not require any additional costs. However, it is important to note that Part B operates differently and does come with associated expenses (refer to the next section).
There is an exception to this rule, which applies if you are actively contributing to a Health Savings Account (HSA) and intend to continue doing so. In such cases, it is advised not to enroll in Part A. Further details on this matter can be found below.
Medicare incurs additional expenses when used as secondary insurance.
Part B of Medicare is no longer free of charge. Instead, you will be required to pay a monthly premium for Part B based on your income. Some individuals who qualify for both Medicare and employer group health coverage may choose to postpone enrolling in Medicare Part B and Part D while still being covered by their group health plan or their spouse’s group health plan. By doing so, they can avoid paying the premiums associated with these parts. Since your employer coverage already includes outpatient benefits, it may not be financially beneficial to pay for Part B and D premiums. When you decide to delay enrolling in Part B, your large group plan is considered to provide creditable coverage. This means that if you choose to retire later on, you can enroll in Part B without facing any late penalties. Once you retire and leave the group plan, your insurance company will send you a letter confirming your creditable coverage. It is important to keep this letter as you will need it to demonstrate to Medicare that you had alternative coverage, thereby avoiding any late penalties for Parts B and D.
If You Retire and then Go Back to Work.
Many individuals inquire about the course of action if they decide to retire, enroll in Part B, and subsequently secure a new job with employer-provided insurance. In such a scenario, it is possible to terminate Part B during that period. Subsequently, upon retiring once more, a second 6-month Open Enrollment window will be available to obtain a Medigap plan without any inquiries regarding health.
What about COBRA
Medicare and COBRA have different coordination rules, and it’s important to understand them to avoid penalties.
When you’re working for a large employer, their Group Insurance takes primary responsibility, and Medicare becomes secondary. However, with COBRA, Medicare pays first and COBRA pays second.
If you have COBRA and become eligible for Medicare, usually at age 65, it’s crucial to enroll in Part A and B during your Initial Enrollment Period (IEP). Your COBRA coverage typically ends when your Medicare begins. Failing to enroll during your IEP can result in lifelong penalties. However, your dependents can continue with COBRA for up to 3 years, even if you enroll in Medicare.
If you continue working past age 65 and then retire, you can enroll in COBRA. But remember, you must also enroll in Part B no later than your 8th month on COBRA insurance, even if COBRA coverage extends beyond that. This is because Medicare takes primary responsibility, and COBRA becomes secondary. It’s recommended to enroll in Part B as soon as you’re eligible for Medicare to ensure smooth coverage. Failure to enroll in Medicare by the 8th month can lead to a permanent late enrollment penalty for Part B and potential delays in coverage. You definitely don’t want to wait months to buy Part B during the next General Enrollment Period.
There is one exception for individuals with End-Stage Renal Disease (ESRD). During a special 30-month coordination period between Medicare and COBRA, your COBRA coverage will be primary if you have ESRD.
Choose Medicare as your Primary Insurance
Another alternative is available for individuals covered under large group employer insurance. You have the option to opt out of your group health plan and select Medicare as your primary insurance, along with a Medigap plan. This choice can often result in lower costs for you or your spouse. Additionally, it can help reduce your deductible expenses and eliminate copayments for doctor visits. The cost-effectiveness of this decision depends on the monthly amount deducted from your paycheck for employer coverage, as well as your plan’s deductible, copays, and medication usage. If you are married and one spouse is younger, it is important to also consider the cost of health insurance for the Medicare recipient’s spouse.
Medicare and Employer Coverage – Small Companies under 20 Employees
If you’re 65 or older and your employer has fewer than 20 employees, Medicare becomes your primary insurance. It’s important to have both Part A and Part B because Medicare will pay first, and then your group insurance will pay secondary. While there are some insurance companies that may cover claims without Part B, we strongly advise against purchasing such coverage. There’s a risk that the insurance company could change their policy at any time, leaving you responsible for expenses that Part B would normally cover. It’s not worth taking that risk, so we always recommend enrolling in Parts A and B if your employer has fewer than 20 employees and Medicare is your primary insurance.
However, if your group plan includes prescription drug benefits (RX benefits), you may be able to delay enrolling in a Part D drug plan without facing any penalties. Most group plans do offer RX benefits, so it’s worth considering. Make sure to compare the costs involved. Sometimes, it may be more cost-effective to leave the group insurance altogether and enroll in a Medicare supplement plan as your secondary insurance.
The HSA Exception
One exception regarding employer coverage, whether it is from a large or small employer, pertains to HSA-compatible health plans. If you possess a qualified high-deductible health plan and decide to enroll in Medicare, you will no longer be able to make contributions to your health savings account. It is important to note that having any part of Medicare active renders you ineligible to contribute to a health savings account. Additionally, if you have active Medicare, you cannot accept any contributions from your employer.
Therefore, if you are employed by a small employer, it is necessary to enroll in Parts A and B at the age of 65 in order to avoid penalties. Consequently, if you intend to maintain your HSA-qualified employer coverage, you must cease contributing to the HSA. However, your spouse can still make contributions if they are covered under your group plan and have not yet enrolled in Medicare.
Frequently Asked Questions
Can my employer pay my Medicare Part B premium?
Typically, employers do not directly pay for Medicare Part B premiums when Social Security sends an invoice for Part B. However, there is an option for employers to establish a Section 105 Medical Reimbursement Plan. This plan allows employers to allocate funds specifically for their employees’ health insurance and dental insurance, including Medicare Part B premiums. With a Section 105 plan, employees can receive tax-free reimbursement for their medical and insurance expenses. One commonly used type of Section 105 plan is a Health Reimbursement Arrangement (HRA), which provides eligible employees with reimbursement for their individual health insurance premiums and other qualified medical expenses.
Can your employer pay your Medigap premium?
We often receive inquiries about whether employers can cover the costs of Medigap plans. This concept may be appealing to both you and your employer. It can be costly for employers to include older employees in the group plan, and you may receive more comprehensive coverage with Medicare and a Plan F or G Medigap plan.
However, it’s important to note that this would go against CMS rules. If you decide to opt for Medicare as your primary insurance and reject your employer’s group insurance plan, your employer cannot pay for your individual Medigap premiums. There is one exception though – if your employer establishes a section 105 reimbursement plan for the entire group.
A Section 105 Reimbursement Plan allows employers to deduct expenses for employees who purchase individual health insurance plans. Eligible employees can participate, and the employer can reimburse premiums for Medicare Parts A and B, as well as Medigap plans. To find out if your employer has a Section 105 plan in place, it’s best to check with them directly.
Can my employer take me off my group health insurance when I turn 65?
Your employer cannot legally force you to choose Medicare over your group health plan while you are actively working. You have the freedom to decide whether to stick with your group health plan or opt for Medicare as your primary insurance. However, it’s important to note that if you are on retiree coverage from a previous employer and are no longer actively working, they are not obligated to provide a retiree plan for you after you turn 65. If they do offer coverage, your benefits may change as Medicare becomes your primary insurance at age 65, and your group coverage becomes secondary. Keep in mind that the prices and benefits of your employer coverage may differ once you reach 65. For instance, if their retiree plan for individuals aged 65 and above is a Medicare Advantage plan, you will need to decide whether to enroll in it or switch to Original Medicare for your coverage. Various factors should be considered, including premiums, medication coverage, and the need for your younger spouse to remain on your plan.
Can you enroll in a Medigap plan even if you have employer coverage at a large employer, just to be sure?
It would be a poor use of funds. A Medigap plan is unable to cover any expenses unless Medicare is your main insurance. The application from the insurance company will inquire about your employment status. If they discover that you have extensive group coverage, they might decline your application as they understand it won’t benefit you. Medicare and employer coverage should provide sufficient coverage.
Retirement Benefits & Coverage
If your company provides coverage for retirees once you have stopped working, Medicare takes precedence over that coverage. Have a conversation with the administrator of your retiree coverage to determine the expenses associated with maintaining that coverage. If the costs are substantial, you may want to think about switching to a Medigap and Part D drug plan instead.
Takeaways
If you currently have employer coverage that is considered creditable, you have the option to switch to Medicare as your primary coverage. The decision ultimately depends on what is more cost-effective for you. Additionally, it’s important to be aware of when you should stop contributing to your HSA account, especially if you choose to delay enrolling in Medicare past your Initial Enrollment period.
Mario Arce
I have been working with Medicare clients since 2016. I serve California members in San Bernardino & Riverside county.
