medicare and employer coverage
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 there are a number of things to think through.
You likely have options to keep your employer insurance and have Medicare 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.
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.
It’s important also to state that 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 your employer has more than 20 employees and you are 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.
Most active employees with group coverage enroll in Part A because it is premium-free if you have worked at least ten years. Part A can coordinate to lower your costs if you have a hospital stay. For example, let’s say your employer health plan has a $3000 deductible. The Medicare Part A hospital deductible is $1340 in 2018. 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 $1340. Medicare pays the rest of any Part A services.
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 choose to delay enrolling in Medicare Part B and Part D while still covered on their group health coverage (or their spouse’s 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.
The key factor is usually the employer plan deductible. If your group insurance has a low deductible and therefore a low risk that you will spend much out of pocket, delaying Part B makes sense. If the deductible is high and you have regular health spending that goes against that deductible, having Part B to pay 80% of your outpatient deductible spending can be quite helpful.
When you DO delay Part B, 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.
Read more about coordination of your Medicare benefits and large employer coverage here.
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. If you are over 65 and you retire, you need to 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.
Please note that 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. The 8 month window does NOT apply and if you wait that long to enroll, you will find yourself owing a lifelong penalty on Part B. You can keep COBRA if you like, but be sure you don’t miss enrolling in 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.
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. Your Boomer Benefits agent can help you decide if you should enroll in Part B now or later. We often meet people that we advise to stay with their group plan for now if that makes more sense.
You can investigate more about your options for Medigap or Medicare Advantage plans here.
Medicare and Employer Coverage – Small Companies under 20 Employees
Medicare is primary if your employer has less than 20 employees. You will need both Part A & B for sure because Medicare will pay first, and then your group insurance will pay secondary. Occasionally we see some insurance companies who will cover claims even if you don’t have Part B. Don’t buy it. You run the risk of that insurance company changing that at any time without warning, and leaving you stuck with all the expenses that Part B would normally cover. It’s not worth the risk – we advise always enrolling in Parts A & B if your employer has less than 20 employees and Medicare will be primary.
However, you may be able to delay enrolling in a Part D drug plan without penalty if your group plan has RX benefits, as most do. Be sure to compare costs. It is sometimes cheaper to leave the group insurance altogether and enroll in a Medicare supplement as your secondary instead.
Read more about Medicare and Employer coverage for small employers here.
The H.S.A Exception
One exception on either large or small employer coverage is H.S.A plans. If you have a qualified high deductible health plan and you plan to contribute into a health savings account, do not enroll in Medicare. You cannot contribute if you have ANY part of Medicare active. Check with your tax adviser on rules for this, and read our blog post about H.S.A. rules for Medicare beneficiaries.
Can your employer pay your Medigap premium?
We often get questions here at Boomer Benefits about whether an employer can pay for your Medigap plan. This idea might appeal to both you and your employer. It’s often expensive for your employer to carry older employees on the group plan, and you are likely to get more comprehensive coverage with Medicare and a Plan F or G Medigap plan.
However, this would violate CMS rules. If you reject your employer’s group insurance plan to choose Medicare primary, the employer cannot pay your Medigap premiums on an individual basis. One exception would be if the employer sets up a section 105 reimbursement plan for their group as a whole.
A Section 105 Reimbursement Plan allows the employer 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. Check with your employer to see if they have a Section 105 plan in place.
Can you enroll in a Medigap plan even if you have employer coverage at a large employer, just to be sure?
This would be a waste of money. A Medigap cannot pay for anything unless Medicare is your primary insurance. The insurance company’s application will ask if you are still employed. When they see that you have large group coverage, they may reject your application because they know it will be of no use to you. Medicare and Employer coverage will be good enough coverage.
If your company offers RETIREE coverage after you have stopped actively working, Medicare is PRIMARY to that coverage. Speak with the administrator of your retiree coverage to find out the costs for maintaining that coverage. If costs are high, you might consider leaving the retiree coverage for a Medigap and Part D drug plan instead.
Where to Start
Deciding all of these things requires some careful cost analysis between the costs for Medicare and the costs, copays and deductibles of your group coverage. A Boomer Benefits agent can walk through all of this and advise you on the parts you need to consider. If it makes sense for you to stay with your employer coverage, we’ll be the first to tell you.