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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.

Medicare With Employer Coverage

There are a number of rules to be aware of when it comes to applying for Medicare with employer coverage.  It is important to understand the valid waivers for Medicare part B for individuals who are working at age 65 or older.  We will review the rules, how to apply for delayed Medicare Part B and how to determine the best solution for you.

Not understanding the options can lead to costly life-long delayed enrollment penalties for both Part B and D of Medicare.

If you would rather watch a video on this topic;  CLICK HERE FOR YOUTUBE VIDEO

Valid waivers for Medicare Part B

Let’s start with the Part B waivers for those actively working at age 65 and older.  These rules also apply to someone who has coverage through their actively working spouse.   There are 3 criteria to consider when figuring out if you can waive Part B of Medicare without having a future penalty. Those not electing Part B need to meet all 3 in order to waive it without a future penalty.  If at any time they are not meeting any of the 3, in most cases, they should apply for Part B.

• Employer size of 20 or more employees

  • The first requirement to waive part B when you have Medicare with employer coverage is; the size of the employer.  Those working with employers of 20 or more employees can waive B if they also meet the other 2 criteria.  Those working for employers of less than 20 employees should enroll in Medicare Part B.  The reason for this is based on primary coverage.  Medicare is primary for employer groups under 20.  As a result, Medicare Part B must be in place for those 65 and older in order for the secondary employer plan.  Without part B they run the risk of the secondary employer plan refusing to pay the 80% that Medicare should have covered.

• Actively working

  • The second requirement is actively working status.  In order to have a valid waiver for Medicare Part B the person must be actively working.  You can also waive part B if they are getting coverage through an actively working spouse.   This is the most common mistake that occurs.  Someone over the age of 65 is working and getting coverage through work.  They then stop working but maintain employer coverage or elect Cobra.  They do not currently have Medicare Part B and see no need to sign up for it since they are continuing with coverage.  The reality is if they are no longer working they must sign up for part B.  If they do not, they could miss their Part B election opportunity and will likely have a delayed Part B enrollment penalty when the do finally get it.

• Having coverage through the working spouses employer

  • The 3rd requirement.  The working spouse must be on coverage through the employer they are working for.  Often is it assumed that as long as you are working at age 65 or older and have coverage, it doesnt matter where the coverage is from.  Maybe the person is working but has coverage through their retired spouse.  Maybe they have it through the health exchange or an old employer.  The bottom line is the only coverage that allows for Medicare part B to be waived is the coverage offered by the employer you are working for/with.  The same applies for the spouse if they are getting coverage through the working person.

 Important things to know

Here are some common misconeptions when it comes to coverage that does not provide a valid reason to waive Medicare Part B.

• Cobra is not a valid waiver.  You must be actively working to waive B and those on Cobra are not actively working.  If you are working and getting coverage through Cobra it still would not count because you are not obtaining coverage through the employer you are working for.
• VA coverage is not a valid waiver for Part B.  Having VA drug coverage is a valid waiver for Medicare Part D however.
• Coverage through an employer other than the one you actively work with is not a valid waiver

Medicare with employer coverage: Penalty

So you didnt have part B when you should have. Unfortunately, there will be a penalty once you do enroll.  The penalty is based off every 12 month period you did not have Medicare part B when you should have.   The penalty is 10% of the standard part B premium ($164.90 in 2023) per every 12 month period you didnt have part B.  So if you went 3 years without Medicare Part B, you will have a 30% monthly lifetime penalty when you do enroll.

Delayed part B enrollment process

There are two ways to enroll in Medicare Part B on a delayed basis.  The first is with loss of employment or loss of group coverage which creates an 8 month SEP to enroll. The application can be done online or at a local Social Security office.  You will need both the employment verification form (CMS L564) and the Medicare Part B enrollment form (CMS 40B).  Both need to be completed prior to applying.

Delayed part B enrollment without a SEP

Those without a SEP to enroll in Part B will need to apply during the Part B GEP (General Enrollment Period) which runs from January 1 through March 31 every year.  The rule for GEP enrollments changes on 1-1-2023.  As of that date, applications will be effective the first of the next month.  They will no longer be delayed until July 1.   Learn more about changes to Medicare for 2023

Medicare with employer coverage:  Tips

• The MA SEP election for a delayed B enrollment is prior to the part B effective date.  You do not have 60 days after the effective date to put in an application.  The 60 days after B effective election is for loss of employer coverage.
• Enrolling in Medicare Part B is not an SEP for a part D drug plan.  Enrolling in Part A and loss of group coverage would be however.
• HSA contributions are not allowed for anyone enrolled in Medicare Parts A or B
• With a delayed Part B enrollment, Part A of Medicare will retro up to 6 months back.  For example, if someone turns 65 in June but applies for Medicare A and B in October, Part B will start November 1 but Part A will retro back to June 1 (first of the month you turned 65)

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