Still Working at 65? How Medicare Works with Employer Health Insurance

Many people continue working past age 65. If you have health insurance through your employer or your spouse's employer, you may wonder how Medicare fits in.

The rules can be complex. Whether you should enroll in Medicare depends on your employer size and other factors. This article explains how Medicare works with employer insurance and helps you make the right decision.

The Basic Rule: Employer Size Matters

The most important factor is the size of your employer. Medicare uses a threshold of 20 employees to determine how coverage works.

Employers with 20 or More Employees

If your employer has 20 or more employees, your employer insurance pays first. This means it is your primary payer. Medicare would be secondary if you also have it.

In this situation, you can delay enrolling in Medicare Part B without facing a late enrollment penalty. Your employer coverage is considered creditable, meaning it is at least as good as Medicare.

Employers with Fewer Than 20 Employees

If your employer has fewer than 20 employees, Medicare becomes your primary payer when you turn 65. Your employer insurance, if you keep it, becomes secondary.

In this case, you should enroll in Medicare at 65. If you delay and only have employer coverage, you may face a Part B late enrollment penalty when you eventually sign up.

Understanding Primary and Secondary Payers

When you have both Medicare and employer insurance, one pays first and one pays second. This is called coordination of benefits.

Primary Payer

The primary payer is the insurance that pays first on your medical bills. It processes claims according to its coverage rules and pays its share of covered expenses.

Secondary Payer

The secondary payer only pays after the primary payer has processed the claim. It may cover some or all of the remaining costs, such as copays, coinsurance, or deductibles.

The secondary payer never pays more than it would have paid as the primary payer. It only fills in gaps left by the primary coverage.

When to Enroll in Medicare Part A

Medicare Part A covers hospital stays, skilled nursing facility care, hospice, and some home health services. For most people, Part A is premium-free.

If You Do Not Have an HSA

If you do not contribute to a Health Savings Account, you should generally enroll in Part A at 65 even if you have employer coverage. Part A is free for most people and provides additional protection.

Part A works well with employer insurance. If your employer plan is primary, it pays first. Part A may cover remaining costs. This gives you extra financial protection for hospital stays.

If You Have an HSA

If you contribute to a Health Savings Account, enrolling in any part of Medicare makes you ineligible to contribute. This includes Part A.

If you want to continue HSA contributions, you must delay enrolling in both Part A and Part B. You can continue contributing until you enroll in Medicare or until six months before you apply for Social Security benefits.

When to Enroll in Medicare Part B

Medicare Part B covers doctor visits, outpatient care, preventive services, and medical equipment. Part B requires a monthly premium.

Large Employer (20 or More Employees)

If you work for a large employer, you can delay Part B without penalty. Your employer plan provides creditable coverage.

When your employment or employer coverage ends, you have eight months to enroll in Part B. This is called a Special Enrollment Period. If you miss this window, you may face a late enrollment penalty.

Small Employer (Fewer Than 20 Employees)

If you work for a small employer, Medicare becomes primary at 65. You should enroll in Part B at 65 to avoid coverage gaps and late enrollment penalties.

Your employer plan may reduce or stop paying if you do not have Medicare. Check with your employer about how their plan coordinates with Medicare.

Coverage Through Your Spouse's Employer

The same rules apply if you have coverage through your spouse's employer. What matters is whether your spouse is actively working and the size of the employer.

If your spouse works for an employer with 20 or more employees, you can delay Part B. If the employer has fewer than 20 employees, you should enroll in Medicare at 65.

Special Enrollment Period After Losing Employer Coverage

When you or your spouse stops working or loses employer coverage, you get a Special Enrollment Period to enroll in Medicare Part B without a late enrollment penalty.

This Special Enrollment Period lasts for eight months. It starts the month after your employment ends or the month after your group health coverage ends, whichever happens first.

Documentation Required

To avoid a late enrollment penalty, you must prove you had creditable employer coverage. You will need a letter from your employer or health plan stating when your coverage began and ended.

Keep this documentation. Request it from your employer before you leave or as soon as your coverage ends. You will need it when you apply for Medicare.

What Does Not Count as Employer Coverage

Not all health coverage qualifies for the Special Enrollment Period or protects you from late enrollment penalties. The following do not count as creditable employer coverage:

COBRA Coverage

COBRA is not considered active employer coverage for Medicare purposes. If you only have COBRA when you turn 65, you should enroll in Medicare.

Delaying Medicare while on COBRA can result in a late enrollment penalty. COBRA is meant as temporary coverage after you leave a job, not as a long-term alternative to Medicare.

Retiree Coverage

Health coverage for retirees is not considered active employer coverage. If you retire and your employer offers retiree health benefits, you should still enroll in Medicare at 65.

Retiree plans often require you to have Medicare. They typically pay as secondary coverage to supplement Medicare.

Veterans Affairs (VA) Benefits

VA benefits are not employer coverage and do not allow you to delay Medicare Part B. If you only have VA coverage, you should enroll in Medicare at 65 to avoid penalties.

Many veterans choose to have both VA benefits and Medicare. They can use VA facilities when convenient and use Medicare for other care.

TRICARE

If you have TRICARE and are eligible for Medicare, you must enroll in Medicare Part A and Part B to keep TRICARE coverage. TRICARE does not allow you to delay Medicare enrollment.

Health Savings Accounts and Medicare

If you have a Health Savings Account, Medicare enrollment creates complications. Understanding these rules is critical to avoid tax penalties.

You Cannot Contribute After Enrolling in Medicare

Once you enroll in any part of Medicare, including Part A, you can no longer make tax-deductible contributions to an HSA. Contributions made after Medicare enrollment are subject to tax penalties.

Six-Month Lookback for Part A

When you enroll in Medicare Part A, coverage can be retroactive for up to six months. If you made HSA contributions during those six months, you may owe tax penalties.

To avoid this, stop contributing to your HSA at least six months before you plan to apply for Medicare. Notify your employer to stop any payroll contributions.

You Can Still Use HSA Funds

Even after enrolling in Medicare, you can continue to use the money in your HSA tax-free for qualified medical expenses. This includes Medicare premiums, deductibles, copays, and coinsurance.

You cannot use HSA funds to pay for Medicare Supplement insurance premiums, but you can use them for most other Medicare-related costs.

Social Security and Medicare Enrollment

Medicare enrollment is connected to Social Security in important ways.

Automatic Enrollment

If you are already receiving Social Security benefits when you turn 65, you will be automatically enrolled in Medicare Parts A and B. You will receive your Medicare card in the mail about three months before your 65th birthday.

If you have employer coverage and want to delay Part B, you can decline Part B coverage. However, you should keep Part A if it is free and you do not have an HSA.

Delaying Social Security

If you delay taking Social Security benefits, you will not be automatically enrolled in Medicare. You must sign up for Medicare yourself during your Initial Enrollment Period or Special Enrollment Period.

Coordination of Benefits in Practice

When you have both Medicare and employer insurance, understanding how they work together helps you use your benefits effectively.

When Employer Coverage Is Primary

If your employer has 20 or more employees and you are actively working, your employer plan pays first. Medicare pays second and may cover some remaining costs.

You still follow your employer plan rules, such as using network providers and getting referrals if required. Medicare only sees the claim after your employer plan processes it.

When Medicare Is Primary

If your employer has fewer than 20 employees, Medicare pays first. Your employer plan may pay second to cover deductibles, copays, or services Medicare does not cover.

In this scenario, you can see any provider that accepts Medicare. Your employer plan supplements Medicare rather than leading your coverage.

Questions to Ask Your Employer

Before deciding whether to enroll in Medicare, talk to your employer human resources department. Here are important questions to ask:

• How many employees does our company have?
• Will our health plan continue to cover me after I turn 65?
• Does the company require me to enroll in Medicare at 65?
• How does the health plan coordinate with Medicare?
• Will my coverage or costs change if I enroll in Medicare?
• Can you provide written proof of coverage dates for Medicare enrollment?

Late Enrollment Penalties

If you delay Medicare enrollment without creditable coverage, you may face late enrollment penalties.

Part B Penalty

The Part B late enrollment penalty is 10 percent of the standard premium for each full 12-month period you could have had Part B but did not sign up. This penalty lasts as long as you have Part B.

You can avoid this penalty if you had creditable coverage from an employer with 20 or more employees and enroll within eight months of losing that coverage.

Final Thoughts

Working past 65 while managing Medicare and employer insurance requires careful planning. The key factors are your employer size, whether you or your spouse is actively working, and whether you contribute to an HSA.

If you work for a large employer, you can safely delay Part B and avoid paying premiums for coverage you do not need as primary insurance. When your employment ends, enroll within eight months to avoid penalties.

If you work for a small employer, enroll in Medicare at 65 even while working. Medicare becomes your primary coverage and your employer plan supplements it.

Always keep documentation of your employer coverage and consult with your HR department to understand how your specific plan works with Medicare.