How does Medicare work with employer insurance?

If you want to know how Medicare works with employer insurance, it depends on your employer and employment situation. Medicare will either be the primary payer or secondary payer based on the size of your company, and you can receive Medicare after you retire while on an employer-sponsored plan. There are even more situations when Medicare works with employer insurance, plus other forms of insurance tied to your employment status, like COBRA.

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Nov 18, 2021

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Overview

  • You will always have the choice of keeping your employer health insurance when you are eligible for Medicare if you work for a large company
  • Depending on the size of your company, Medicare may be your primary or secondary insurance
  • Medicare also works with COBRA, TRICARE, VA benefits, and HRAs

You can keep your employer-sponsored health insurance with Medicare. But how does Medicare work with employer insurance? It depends on a few factors, including the size of your employer’s company.

If you wonder whether you should keep your employer-sponsored health insurance or switch to Medicare, you should compare coverages to see which plans are better.

How does Medicare work with your employer’s insurance company if you decide to keep both? Medicare doesn’t work directly with employer insurance. But if you want to keep both Medicare and your employer insurance, both will be subject to primary and secondary insurance rules.

Read on to learn how Medicare works with employer insurance and other types of health insurance. We also have tips for navigating the Medicare landscape. And if you want to see rates from top health insurance companies in your area, enter your ZIP code into our free quote tool above.

How does Medicare work with employer health insurance plans?

When you’re eligible for Medicare (usually when you turn 65), and you’re still actively employed, you will have three options:

  • Keep your employer-sponsored health insurance policy
  • Transition to a Medicare health insurance plan
  • Keep your employer-sponsored health insurance plan and sign up for Medicare

Depending on the type of company you work for, your employer might make that choice for you. Otherwise, most actively employed seniors will opt to sign up for Medicare Part A (which has no monthly rates) while staying in their company’s group insurance pool.

That said, how does Medicare work with large companies (those with 20+ employees)?

If you work for a company with 20 employees or more, you will be allowed to keep your current health insurance while signing up for Medicare. In this case, your employer’s health plan will be your primary insurance. You will have Medicare secondary payer coverage.

Alternatively, you can delay signing up for Medicare if your group plan counts as creditable coverage. That means when you retire, you can sign up for Medicare without penalty.

For Original Medicare (Parts A and B), you will have an eight-month sign-up period. You will have 63 days to enroll in Medicare Advantage without penalty.

Now, how does Medicare work with small companies (those with fewer than 20 employees)?

If you work for a small company, you may be allowed to keep your employer-sponsored insurance. Otherwise, your employer may urge you to switch to Medicare.

In any event, you should sign up for Medicare when you have the chance. This will be your primary insurance. Also, by signing up for Parts A and B, you increase the chances that your employer-sponsored insurance will pay the remainder of your claims.

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Are there any other instances when Medicare works with employer health insurance?

There are some cases where you can use Medicare and employee health insurance. For example, if you are over 65 and returning to work, the above primary and secondary insurance rules for large and small companies still apply.

If you enroll in Medicare Part B, you may drop the coverage without penalty. Then you can re-enroll once you retire. You will have an eight-month sign-up period.

Also, some people with disabilities need to have Medicare benefits before they turn 65. If they are actively employed, Medicare will often serve as the primary form of insurance. However, if the person works for a company with 100 or more employees, Medicare will be the secondary insurance.

Additionally, consider whether to use a Health Reimbursement Account or Health Savings Account.

How does affordable Medicare work with employer insurance subsidy accounts? If you have an HRA, your employer will put money into an account to reimburse you for any payments you make to Medigap plans.

Note that your employer can only contribute to an HRA when you are on Medicare. This is covered under Section 105 of the Internal Revenue Service Tax Code. Also, you can only qualify for the HRA if enrolled in your employer’s health plan.

Neither you nor your employer may contribute to an HSA when you are on Medicare.

How does Medicare work with other types of health insurance?

You can also use Medicare if you are using COBRA or military health insurance coverage. Each has special rules:

  • When you have Medicare and COBRA, Medicare acts as your primary insurance.
  • TRICARE is the primary insurance for active military members. Medicare is the primary insurance payer for retired veterans who receive TRICARE for life and enroll in Medicare Part B.
  • If you have VA benefits, those pay for your care in a VA medical facility. Otherwise, Medicare pays for any medical assistance.

Note that you can add COBRA if you are already on Medicare. However, your COBRA coverage will end if you have it first. However, your family can still have COBRA coverage for as long as it would usually last.

What to consider when navigating the Medicare landscape?

As you near eligibility for Medicare, you will need to consider the level of health insurance coverage you want, should you continue working:

  • Will you keep your employer insurance and enroll in Part A or Parts A and B?
  • Do you prefer to move to Original Medicare, enroll in Medicare Part D, and purchase Medigap insurance?
  • Will you move to Medicare Advantage and enroll in Medicare Part D coverage?

Compare coverages and rates to see which plans are better. Whatever you do, make sure that you enroll during the enrollment period. This way you will avoid penalties should you ever need Medicare in the future.

If you delay your Medicare enrollment because you have creditable health insurance coverage, have your employer fill out the CMS-L564 form from the Centers for Medicare and Medicaid Services.

If you want to know more about Medicare, read our post about understanding Medicare and Medicaid. You can also view our FAQ section below.

We hope this information has answered your question: How does Medicare work with employer insurance? And if you are ready to look at quotes from top health insurance companies in your area, enter your ZIP code into our free tool below.

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Frequently Asked Questions: How does Medicare work with employer insurance?

Here are answers to some questions you may have about how Medicare works with employer health insurance:

#1 – What is secondary insurance?

Here is the difference between primary and secondary insurance coverages:

When you have two similar forms of insurance, the primary payer will cover all costs up to a specified limit. Then the secondary insurance will cover outstanding costs until you reach its limit. After that, you will need to pay the remaining costs yourself.

Insurance protects you from unforeseen costs. This principle works with Medicare and other forms of health insurance if you carry both.

#2 – Can I drop my employer health insurance for Medicare?

Yes, you can drop your employer’s health insurance for Medicare regardless of your employer’s company size. You should see savings from the rates you would usually pay for the employer plan in your paychecks.

#3 – Do I need my employer’s health insurance if I have Medicare?

Before you sign up for Medicare, there are a few considerations you need to make:

  • How much health insurance coverage do you need for yourself and anyone in your household?
  • How much are you willing to pay in health insurance rates per year?
  • What type of Medicare plan will you choose?

Depending on your answers to these factors, it might be a good idea to keep your employer’s health insurance and sign up for Medicare Part A in the meantime.

If you are actively employed and in a group plan (and not on COBRA), you can sign up for Medicare Parts B and D and Medigap without penalty after you retire.

However, if you find a Medicare Advantage plan for yourself that offers comparable coverage as your employer-sponsored health insurance, you might save money with that plan. Just remember to sign up for Medicare once you are eligible for it.

#4 – Can you have a Medicare Advantage plan and employer health insurance?

Medicare Advantage is part of Medicare. There are no restrictions on the type of plan that you can have in addition to your employer-sponsored health insurance. However, you might not want to carry both forms of health insurance.

Depending on the carrier you choose through the Medicare Advantage program, you might find comparable coverage at a lower price than your group insurance. According to the Kaiser Family Foundation, Medicare Advantage only adds an average cost of $21 per month.

When added to the average monthly rate of $148 per month (for Medicare Part B), you may only pay as much as $170 per month. (Some Medicare Advantage plans will completely supplement Part B payments, meaning you will only pay $21 per month.)

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