How Does Medicare Work With Employer Insurance?

Medicare typically becomes the primary insurer for individuals aged 65 and older, while employer insurance often acts as secondary coverage, helping to cover costs that Medicare does not fully pay for. However, there are situations in which employer insurance will serve as the primary payer.

At age 65, most Americans become eligible to enroll in Medicare for their health insurance needs. However, at age 65, some individuals may still be employed and covered by their employer-sponsored health plan. It is possible to have health coverage from both Medicare and an employer. If this is the case for you, knowing how Medicare and the employer plan will work together is essential.

When an individual becomes eligible for Medicare, they must enroll during their initial enrollment period (IEP) to get the lowest rate possible. IEP is three months before you turn 65, the month of your 65th birthday, and three months after turning 65. If you delay enrolling, you may face a late enrollment penalty. However, the penalty is waived if you delay enrollment because you have employer coverage.

Understanding the Basics of Medicare and Employer Insurance

Sometimes, an insured may have access to Medicare and an employer-sponsored plan. If this is the case, it is important to understand how each plan will work.

Original Medicare has two parts:

Part A covers inpatient care, such as hospital stays.
Part B covers outpatient care, such as doctor appointments, procedures, and medical equipment.

At age 65, eligible individuals will automatically be enrolled in Part A. If you want Part B coverage, you must enroll. If you have employer coverage, your plan may offer a lower premium or more extensive coverage. It may also be the case that an employer plan covers you and your spouse and dependents.

How Does Coordination of Benefits Work?

When it comes to health insurance, coordination of benefits refers to what order insurance policies will pay for services. If multiple health policies are in force, the following coordination will happen:

One policy will become the primary coverage: the policy that pays first.
The other policy will become the secondary policy: the policy that pays second.

There are specific situations when Medicare may be the primary or secondary payer.

Medicare as Primary Payer

In certain situations, Medicare would be considered the primary payer. If you have both Medicare and employer coverage, Medicare would be considered primary in the following situations:

You have retiree insurance from a former employee.
You have health coverage through your employer or your spouse’s employer, and the employer has less than 20 employees.
You’re under 65 and have both Medicare and coverage through your employer or your spouse’s employer, and the employer has less than 100 employees.

Medicare as Secondary Payer

In other cases, Medicare may act as a secondary payer. If you have both Medicare and employer coverage, Medicare would be considered secondary in the following situations:

You have health coverage through your employer or your spouse’s employer, and the employer has more than 20 employees.
You are under 65 and have both Medicare and coverage through your employer or your spouse’s employer, and the employer has more than 100 employees.

Understanding Premiums and Deductibles

An essential aspect of health insurance policies is understanding the out-of-pocket expenses, such as premiums and deductibles.

With Medicare Part A, most people will pay no monthly premium. In 2023, Part A has a $1,600 deductible per inpatient benefit stay. For Medicare Part B, the monthly premium in 2023 is $164.90. Part B also has a deductible of $226 per year and an 80% coinsurance after the deductible is met.

With an employer-sponsored plan, the premiums, deductibles, and co-pays may vary greatly per plan.

Should You Keep Both Medicare and Employer-Sponsored Insurance?

In certain instances, keeping both Medicare and your employer plan may be beneficial. It is important to review all aspects to make a well-informed decision.

Keep Both If…

In the following situations, consider keeping both Medicare and the employer plan:

A spouse or dependents may lose health coverage if the employer’s plan is dropped.
The premiums for the employer plan are affordable.
The employer-sponsored plan offers more extensive coverage than Medicare.
Having two insurance policies to cover your medical needs will lower your overall out-of-pocket expenses.

Keep Just Medicare If…

Once an individual turns 65, they may drop their employer coverage. Consider keeping just Medicare in the following situations:

Only coverage for the primary insured is needed.
The premiums, deductibles, and coinsurance are affordable.
Medicare offers adequate coverage and providers for health needs.
Having one health insurance plan is easier to manage than multiple plans.

Keep Just Employer Insurance If…

On the other hands, there may be cases where delaying Medicare and keeping the employer plan may be the best. Consider the following situations:

The employer plan covers a spouse or dependents.
The employer plan has lower premiums, and the employer is sharing in the cost
The coverage is more extensive, or the program offers better copays or coinsurance.
The insured has a health savings account through the employer and wants to continue to contribute to that account.

Can You Use Your HSA While on Medicare?

A health savings account (HSA) is a type of savings account that allows contributions on a pre-tax basis to pay for health-related expenses. Employers often offer these accounts when employees have a high deductible health plan.

If you have an HSA and enroll in Medicare Part A or B, you can no longer contribute to their HSA. However, once your Medicare coverage begins, you can use your previously contributed funds in their HSA for medical-related expenses.

All in All

When you turn 65, you must make vital health insurance decisions. If you are still working and have employer-sponsored coverage, that decision may be more complicated. Knowing how Medicare and employer coverage work together can make the decision making process more streamlined and less challenging.

Frequently Asked Questions

Cobra coverage is temporary insurance coverage for employees who have lost their employer-sponsored coverage. Generally, if someone has COBRA coverage and becomes eligible for Medicare, they must drop the COBRA coverage and enroll in Medicare.

It depends. If you are disabled, under the age of 65, and your employer has less than 100 employees, Medicare pays first. In the same scenario, except the employer has more than 100 employees, the employer plan pays first. If you are 65 or older, standard Medicare/employer coverage coordination of benefit terms apply.

In some instances, it may be helpful to delay Medicare if you have employer insurance. It may be wise to wait if your spouse or dependents are on your plan and your employer offers lower premiums or better coverage.

Yes. If your employment status changes, you can enroll in Medicare with no late enrollment penalty.

How Medicare Works With Employer Insurance