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. (People under 65 on Medicare, click here for different rules).
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 $1,408 in 2020. 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 $1,408. 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 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.
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. 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 with 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
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 staying 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 you
are age 65 or older and your employer has fewer 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 fewer 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 HSA Exception
Medicare and employer health insurance do not
mix well if you are contributing to an HSA account. Beware of tax penalties if
you contribute to an HSA.
One exception on either large or small
employer coverage is HSA-compatible health plans. If you have a qualified high
deductible health plan and you enroll in Medicare, you can no longer contribute
to your health savings account.
You cannot contribute to a health savings
account if you have ANY part of Medicare active. You also cannot accept any
contributions from an employer if you have active Medicare.
So, if you work for a small employer, you must
enroll in Parts A and B at 65 to avoid penalties. This means that if you plan
to keep your HSA-qualified employer coverage, you must stop contributing into
the HSA. Your spouse can still contribute if he or she is covered on your group
plan and is not yet enrolled in Medicare.
Check with your tax adviser on rules for this,
and read our blog post about H.S.A. rules for Medicare
beneficiaries.
Can my employer pay my Medicare Part B
premium?
In terms of your employer actually writing a
check for your Medicare Part B premiums when Social Security invoices you for
Part B, generally no.
However, employers can form a Section 105
Medical Reimbursement Plan, which will enable them to set funds aside for
workers to use toward health insurance and dental insurance for the employees
and family. This includes Medicare Part B premiums. A Section 105 plan allows
tax-free reimbursement of the employee’s medical and other insurance expenses.
One popular type of Section 105 plan is a
Health Reimbursement Arrangement, or HRA. It is designed to reimburse eligible
employees for their individual health insurance premiums and other qualified
medical expenses.
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 my employer kick me off my group health
insurance when I turn 65?
It’s illegal for an employer to force any
actively working employee to choose Medicare instead of their group health
plan. You have the option to leave the group health plan and choose Medicare as
your primary insurance instead, but your employer cannot make you do so.
Be aware though that if you are on retiree
coverage from a former employer where you are no longer actively working, the
employer does not have to provide a retiree plan for former employees after age
65. If that former employer DOES offer coverage, your benefits will likely
change when you turn 65. This is because when you are age 65 and have retiree
coverage, Medicare becomes your primary insurance, and your group coverage now
pays secondary.
Prices and benefits from your employer
coverage may be different once you turn 65. For example, if their retiree plan
for people age 65 and older is a Medicare Advantage plan, then you will
need to choose whether you want to enroll in that at 65 or switch to Original
Medicare as your coverage. There are many factors to consider, such as
premiums, how the plan covers your medications, and whether you have a younger
spouse that needs to stay on your plan.
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.
Retiree 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
So can you have private insurance and
Medicare? Yes, but there are many factors to consider. 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.
This website has additional reading about
Medicare coordination. See our posts for Medicare and Employer coverage
for employer plans with less than 20 people. We also have a Medicare
coordination of benefits post for employer plans with more than 20 people.
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