How Medicare Works with Employer Health Coverage
Navigating health insurance options can be overwhelming, especially when it comes to understanding how Medicare interacts with employer-sponsored health plans. Those who are either still working or have coverage through a spouse’s employer need to understand how Medicare and employer coverage coordinate. Having knowledge of how these plans work together can ensure benefits are maximized and unnecessary charges are avoided.
Watch a video on how Medicare works with employer coverage
Primary vs. Secondary Payer
One of the most critical aspects of coordinating Medicare with employer health coverage is determining which insurance is the primary payer (pays first) and which is the secondary payer (covers remaining costs). This depends on several factors, including the size of the employer and whether the individual has Medicare due to age, disability, or End-Stage Renal Disease (ESRD).
- If the employer has 20 or more employees: The employer-sponsored plan is typically the primary payer, and Medicare acts as the secondary payer. This means your work plan pays first, and Medicare may cover some remaining costs.
- If the employer has less than 20 employees: Medicare is usually the primary payer, and the employer plan serves as secondary coverage.
- Those who qualify for Medicare due to disability and the employer has less than 100 employees: Medicare generally becomes the primary payer.
- Anyone who has Medicare due to ESRD: The employer plan pays first for the first 30 months, after that, Medicare becomes the primary payer.
Should you enroll in Medicare
Whether or not an individual should enroll in Medicare Part A and/or Part B while working depends on the number of emloyees. It also depends on whether the employer’s plan provides creditable coverage (coverage that is as good as or better than Medicare).
- Medicare Part A (Hospital Insurance): Most people qualify for premium-free Part A, so enrolling is often a good idea, even if you have employer coverage. Although, if you contribute to a Health Savings Account (HSA), enrolling in Medicare will impact your ability to make tax-free contributions.
- Medicare Part B (Medical Insurance): If the employer coverage is primary, individuals may be able to delay Part B enrollment without penalty. However, if Medicare would be the primary payer, the indivdual should enroll in Part B to avoid gaps in coverage to avoid LEPs ( late enrollment penalties).
Medicare and COBRA Coverage
If you leave your job and have access to COBRA coverage, it’s essential to understand how it works with Medicare:
- If you already have Medicare it is very unlikely that you will elect COBRA coverage. when you elect COBRA, Medicare remains your primary payer, and COBRA serves as secondary coverage. Although the cost for COBRA is usually high becuase once you are eligible for Medicare, your employer will not pay any portion of the COBRA premium.
- If you become eligible for Medicare while on COBRA, your COBRA coverage may end. If you do not enroll in Medicare, COBRA may only pay a small portion of your medical expenses leaving beneficiaries with a large bill.
Avoiding Late Enrollment Penalties
Those who delay enrolling in Medicare because they have employer coverage qualify for a Special Enrollment Period (SEP) when employment or coverage ends. This allows them to sign up for Medicare without penalties. However, if they miss this window, they may face lifetime late enrollment penalties,for Part B and Part D (prescription drug coverage).
Watch a quick YouTube video on OEP, SEPs and LEPs
Understanding how Medicare interacts with employer health coverage is key to making informed healthcare decisions. Whether Medicare is the primary or secondary payer, knowing when and how to enroll can save money and ensure seamless coverage. If you’re unsure about your situation, consulting with a Medicare agent or your companies benefits administrator can help ensure you choose the best plan for your health coverage.