Navigating healthcare coverage at age 65 is complicated when an individual is still actively working and covered by an employer’s group health plan. Coordinating Medicare eligibility with existing health insurance requires a clear understanding of federal rules, timing, and financial responsibility. The interaction between Medicare and employer coverage is not uniform; it changes based on factors like company size and whether the coverage is based on current employment. Understanding these coordination rules is necessary to avoid coverage gaps or permanent premium penalties.
The Foundation: How Employer Size Determines Priority
The most important factor determining how Medicare interacts with an employer-sponsored health plan is the number of employees in the company. Federal law establishes a threshold of 20 employees to classify the employer’s plan as either primary or secondary to Medicare. This classification dictates which insurance plan pays first for medical services.
For employers with 20 or more employees, the employer’s Group Health Plan (GHP) is the primary payer, and Medicare is secondary. The GHP pays its share of a medical claim first, and Medicare then considers covering any remaining costs, such as deductibles or copayments. Individuals in this scenario can often delay enrolling in Medicare Part B without incurring a late enrollment penalty because their GHP provides primary coverage.
When an employer has fewer than 20 employees, the priority is reversed, and Medicare becomes the primary payer. If the employee does not enroll in Medicare Part A and Part B, the employer’s plan may pay little or nothing for services Medicare would have covered. Enrollment in both Part A and Part B is highly recommended for individuals working for small companies to avoid this financial consequence.
Understanding Coordination of Benefits (Primary vs. Secondary Payer)
Coordination of benefits determines the order in which multiple insurance plans pay a claim. The primary payer pays first, up to the limits of its coverage. The secondary payer then reviews the remaining balance and covers eligible costs that the primary payer did not.
When a Large Group Health Plan (LGHP) is primary, the medical bill is first submitted to the employer plan. The LGHP processes the claim, paying a portion and leaving the patient responsible for the deductible, copayments, or coinsurance. The claim is then sent to Medicare, which acts as the secondary payer and may cover some or all of the remaining patient responsibility.
If Medicare is the primary payer, the claim must be submitted to Medicare first. For example, Medicare Part B typically pays 80% of the Medicare-approved amount for covered services. The claim is then sent to the secondary employer plan, which may cover the remaining costs depending on its specific benefits. Failure to enroll in Medicare Part B when it is primary can result in the employer plan refusing to pay, leaving the individual responsible for the entire bill.
Enrollment Deadlines and Avoiding Late Penalties
Avoiding lifelong increases in premium costs requires careful navigation of Medicare enrollment deadlines. The Initial Enrollment Period (IEP) for Medicare Part B is a seven-month window centered around an individual’s 65th birthday. Missing this window when enrollment is required can result in a permanent late enrollment penalty.
Individuals actively working and covered by a Group Health Plan (GHP) from an employer of 20 or more employees can typically delay Part B enrollment without penalty. This deferral is possible because the GHP is the primary payer and the coverage is considered “creditable.” These individuals are granted an eight-month Special Enrollment Period (SEP) to sign up for Part B without penalty.
The eight-month SEP begins the month after active employment ends or the GHP coverage ceases, whichever happens first. It is advisable to enroll in Part B before the employer coverage ends to prevent a gap in coverage. For prescription drug coverage (Medicare Part D), a separate deadline exists: an individual must enroll in a Part D plan within 63 days of losing creditable drug coverage to avoid a late enrollment penalty.
Special Considerations for Working Past Age 65
Continuing to work past age 65 introduces specific complications, particularly concerning Health Savings Accounts (HSAs) and the definition of active coverage. Individuals enrolled in any part of Medicare are not permitted to contribute new funds to an HSA. Since Medicare Part A is premium-free for most, many people enroll automatically, but this disqualifies them from making further HSA contributions.
If an individual enrolls in Part A after age 65, the coverage is retroactively backdated up to six months. This can create a tax problem if HSA contributions were made during that retroactive period. Contributions to an HSA must stop at least six months before the month an individual intends to apply for Medicare or Social Security benefits to prevent a tax penalty. The 20-employee rules for primary and secondary payment also apply if the GHP is obtained through a spouse’s current employment.
Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage does not qualify as active employment coverage for purposes of delaying Medicare Part B. If an individual chooses COBRA after employment ends, the eight-month SEP clock still starts the month after the active employment or group health coverage ends. Relying on COBRA past that eight-month window without enrolling in Medicare Part B results in late enrollment penalties and a coverage gap until the next General Enrollment Period.