Medicare Coordinates Benefits With Your Employer Coverage

If you are 65 + (or turning 65 soon) and will have both Medicare and Employer Coverage too because you are still actively working, you have a number of things to think through.

You likely have options to keep your employer insurance and Medicare will coordinate with that coverage. You’ll also want to compare the cost of that employer coverage against what it would cost you to roll over to Medicare as your primary insurance.

Doing your research will help you decide on which coverage option is most cost-effective. It can also help you avoid any Medicare late enrollment penalties wherever possible. Again, this info below is for beneficiaries age 65 or older. (Medicare coordination rules are different for people under age 65 on Medicare due to disability.)

Active Employer Coverage

Active employer coverage means you are still actively working, not retired. In this scenario, you have the right to remain on your employer’s group health insurance plan if you choose.  Your Medicare benefits can coordinate with that coverage. HOW it coordinates depends on the size of your employer.

These same rules apply if your group health coverage is through your spouse’s employer.

Medicare and Employer Coverage – Large Companies 20+ Employees

Medicare is secondary if you age 65 or older and your employer has more than 20 employees and you are still ACTIVELY working (not a retiree or on COBRA). This is called Medicare Secondary Payer. In this scenario, your group plan pays first, and then Medicare pays second. For example, let’s say your employer health plan has a $3000 deductible. The Medicare Part A hospital deductible is $1484 in 2021 so if you have both your employer insurance and Part A, and you incur a bill for a hospital stay, you will only be out $1484. Medicare pays the rest of any Part A services.

It doesn’t necessarily work the same way with Part B and Part B costs money (see next section), so that’s why most people choose Part A only when working for a large employer.

One exception would be if you are contributing to an HSA account and plan to continue doing so. If that’s the case, do not enroll in Part A. Read more on that below.

Medicare as Secondary Insurance Costs Money

Now Part B is not premium-free. You will pay a monthly premium for Part B based on your income. Some people eligible for Medicare and employer group health coverage because they are ACTIVELY working, choose to delay enrolling in Medicare Part B and Part D while still covered on their group health coverage (or their spouse’s ACTIVE group health coverage).

This saves them the premiums they would have paid for those parts. Your employer coverage already includes outpatient benefits so it may not be worth it to pay those Part B and D premiums.

When you DO delay Part B because you continue to work and are under ACTIVE employer coverage, your large group plan is considered creditable coverage. That means that you can enroll in Part B later without late penalty when you decide to retire. Once you quit and leave the group plan, your insurance company will mail you a creditable coverage letter. Be sure you keep this. You will need it to show Medicare that you had other coverage so that you are not subject to late penalties for Parts B and D. When you retire you must enroll into Medicare Part B or you may be penalized or worse yet, not able to get Medicare Part B until a much later date.

What Happens if You Retire and then Later Go Back to Work?

Also, many people ask us what happens if they retire, get Part B, and then later get a new job with employer insurance. You can cancel Part B at that time. Later when you retire again, you’ll have a second 6-month open enrollment window to get a Medigap plan with no health questions asked.

A Word About COBRA

Medicare coordinates differently with COBRA than it does with active coverage. This is important because so many people get this wrong and then owe penalties.

When you are still actively working at a large employer, their Group Insurance pays primary and Medicare pays secondary.

The opposite is true of COBRA. Medicare pays first and COBRA pays second.

So, if you are  under 65 and on COBRA, then when you turn 65 you must enroll in Part A and B during your Initial Enrollment Period. You need to enroll because Medicare will be your primary coverage and COBRA only pays as secondary. Failure to enroll during your IEP will result in a lifelong penalty. You can keep COBRA if you like and let it pay secondary instead of a Medigap plan. Just be sure you don’t miss enrolling in both Part A and Part B during your Initial Enrollment Period, which begins 3 months before your 65th birthday month and ends 3 months after your 65th birthday month.

If you work past age 65 and then you retire, you must enroll in Part B no later than your 8th month on COBRA insurance, even if COBRA continues beyond that. Failure to do so can result in a permanent late enrollment penalty for Part B. Even worse, it could delay your Medicare Part B until July of the following year. You do not want to find yourself in a situation where you have to wait months to buy Part B.

The Option to Choose Medicare as your Primary Insurance

People will large group employer insurance also have another option. You can leave your group health plan and choose Medicare as your primary insurance, and then add a Medigap plan. This can often be cheaper for you or your spouse. For many people, it will also reduce your deductible spending and eliminate all doctor copays.

Whether this is cost-effective depends on how much your employer coverage costs you each month in your payroll deductions. Your plan deductible, copays, and your medication usage also are factors. If you are married and one spouse is younger, you must also consider the cost of health insurance for the spouse of the Medicare recipient


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