Employer Coverage and Medicare
If you are turning 65 soon or are already 65+ and are looking into what your options are for healthcare, odds are you may be covered under an employer group coverage. This raises quite a few scenarios and concerns as to how this will work with Medicare.
You will most likely get the option of keeping your employer coverage and Medicare will coordinate with this coverage. Before making this choice you will want to compare the cost and coverage of both options. Doing diligent research and working with a AHIC agent will allow you to select the most cost effective coverage and make sure you don’t have to pay any Medicare late enrollment penalties in the future.
Note: The information below is for ages 65+ Medicare beneficiaries, the coordination rules are different for those who are under the age of 65 on Medicare due to disability.
Active Employer Coverage
Active employer coverage means you are still actively working, not retired. You have the right to continue on your employer’s group health insurance plan and your Medicare benefits can coordinate with that coverage. HOW it coordinates depends on the size of your employer. We will go over both below.
This still applies if your group coverage is through your spouse’s employer.
Medicare and Employer Coverage – Large Companies 20+ Employees
If you age 65+, actively working, and your employer has more than 20 employees than Medicare is the secondary payer for your health insurance. In this scenario, your group plan pays first, and then Medicare pays second. If you are retired and on COBRA, this does not apply to you.
If you have worked 40 quarter or 10 years Medicare Part A (Hospital Coverage) is premium free, so most active employees with group coverage enroll in Part A. Enrolling in Medicare Part A while in employer group coverage can lower your costs during a hospital stay.
For example, let’s say your employer health plan has a $3500 deductible. The Medicare Part A hospital deductible is $1364 in 2019. So if you have both your employer insurance and Part A, and you incur a bill for a hospital stay, you will only pay the $1364 Medicare deductible. Medicare pays the rest of any Part A services.
Medicare Part B (Medical coverage) does not work the same way. Part B has a premium so that’s why most people choose Part A only when working for a large employer. This leads into our next section with Medicare being the second payer.
Note: 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
There is a monthly premium associated with Part B based on your income. Because of this, 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 employer group health coverage (or their spouse’s group health coverage).
The employer group plan is considered creditable coverage. This basically means that the coverage meets a certain level so that when you do decide to retire and take your Medicare benefits, you will not have to pay any of the late enrollment penalties associated with Part B and D. Once you decide to retire and/or leave the group plan, your insurance company will mail you a creditable coverage letter. Be sure you hand on to this as you will need it to show Social Security that you had other creditable coverage so that you are not subject to these late enrollment penalties.
What Happens if You Retire and then Later Go Back to Work?
Also, many people ask us what happens if they retire, enroll into Medicare Part B, then later get a new job that offers employer insurance. You are able to cancel Part B at that time then 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 as before.
COBRA – Non Active Continued Employer Coverage
Medicare coordinates differently with COBRA than it does with active coverage. When you are still actively working at a large employer, their Group Insurance pays primary and Medicare pays secondary. But, when you are on COBRA, Medicare pays first and COBRA pays second. This is a very important distinction because with COBRA alone, you would not have credible primary coverage. This means if you did not sign up for Medicare Part B & D you would have to pay lifelong penalties once you do enroll in Part B and D.
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. Failure to do so can result in a permanent late enrollment penalty for Part B and it could delay your Part B start date until the next July.
Let’s look at some examples.
Option 1: You decide to retire at 65 and take Social Security Benefits.
In this case you will be automatically enrolled in Medicare Part A and Part D by Social Security. This means you will be able to enroll into a Medicare Supplement plan, Medicare Advantage plan and Part D Drugs and have coverage the month you turn 65.
Option 2: You decide to retire at 65 and delay Social Security Benefits.
If you decide to not take your social security benefits and will not longer be covered by your group employer coverage, you would need to sign up for Medicare Part A and Part B. You’ll have to enroll yourself, either online or by contacting Social Security. You can enroll in Medicare parts A, B and D (prescription-drug coverage) during your initial enrollment period (IEP). Your IEP is 7 months long and starts three months before the month you turn 65, runs through the month you turn 65, and goes on three months after the birthday month. For example, if your 65th birthday is July 4, 2019, the initial enrollment window is open from April 1 until October 31. Once you are enrolled in Parts A and B you are able to enroll into an additional health plan like a Medicare Advantage or Medicare Supplement plan.
Option 3: You decide to continue working past 65.
Note: You should always contact your employer or union benefits administrator before delaying Part A and Part B to find out how your insurance works with Medicare. Your employer coverage may require that you enroll in Part A and Part B in order to get your full coverage. Comparing your employer coverage with Medicare coverage with an agent is also smart as one may suit your needs better.
You have 3 options here:
- Continue on employer plan and delay Medicare part B. (Active Employer Coverage)
As long as your employer has more than 20 employees and you do not have a Health Saving Account (HSA), you will not have to pay any penalties for delaying Part B and saving on the Part B premiums. You should however sign up for Part A if you qualify for premium free Part A (40 quarters worked) to avoid paying part A penalties.
- Continue on Employer plan and take part A and B.
This would be the correct choice if your employer currently employs fewer than 20 employees. Medicare pays before your employer insurance. This means that Medicare is the primary payer for your health coverage.
- Drop Employer plan and take part A and B.
Some folks do decide to leave the group employer insurance and make Medicare the primary insurance. Then add on either a Medigap plan or enroll into a Medicare Advantage plan. This can often be more cost-effective and may more coverage for you and/or your spouse. You will want to consider the cost of health insurance for your spouse if under 65 and any other family member currently covered by your employer. An AHIC agent can help you decide which coverage would make sense for you.