Can My Employer Pay My Medicare Premiums?

Many people who are still working past age 65, or who are retired and receiving employer-sponsored retiree benefits, wonder whether their employer can help cover the cost of Medicare premiums. The short answer is yes, but the rules governing how employers can do this are specific and have changed significantly over the past decade. Getting this wrong can create tax problems or, worse, affect your Medicare coverage itself.

Can an Employer Pay Medicare Premiums Directly?

Employers generally cannot pay Medicare premiums directly on behalf of an active employee without creating a taxable benefit. If an employer simply adds money to your paycheck to cover Medicare premiums, that amount is treated as taxable wages. However, there are structured arrangements that allow employers to reimburse Medicare premiums on a tax-advantaged basis, specifically through Health Reimbursement Arrangements (HRAs) and Section 105 medical reimbursement plans.

Health Reimbursement Arrangements (HRAs): The Legal Way to Reimburse

A Health Reimbursement Arrangement (HRA) is an employer-funded account that reimburses employees for qualified medical expenses, including Medicare premiums, on a tax-free basis. The employer funds the HRA; the employee submits receipts for reimbursement. There are several HRA types relevant to Medicare beneficiaries:

ICHRA: The Most Flexible Option for Active Employees

The Individual Coverage HRA (ICHRA), available since January 1, 2020, is the primary mechanism through which employers of any size can reimburse active employees for Medicare premiums tax-free. Under ICHRA rules, Medicare Parts A, B, C (Medicare Advantage), and D premiums all qualify as reimbursable expenses. The employer sets a monthly dollar allowance, and the employee submits documentation of their Medicare premium payments to receive tax-free reimbursement.

There is no annual cap on ICHRA contributions. Employers can set any allowance amount they choose. Employees must be enrolled in Medicare (or another qualifying individual health coverage) to participate. Importantly, employees cannot be offered both an ICHRA and a traditional group health plan for the same class of employees.

Section 105 Plans: A Proven Tax-Free Reimbursement Option

A Section 105 plan (named after Internal Revenue Code Section 105) is a self-insured medical reimbursement plan that allows employers to reimburse employees for medical expenses, including Medicare premiums, on a tax-free basis. While ICHRAs are the newer and more commonly discussed option, Section 105 plans have been available for decades and remain a valid approach, particularly for small businesses and S-corporations.

Under a Section 105 plan, the employer adopts a written plan document specifying which expenses are reimbursable, the eligible class of employees, and the reimbursement limits. Medicare Part A, Part B, Part D, Medicare Advantage premiums, and Medigap premiums all qualify as eligible expenses. Reimbursements are tax-deductible for the employer and tax-free for the employee.

Key Section 105 requirements for 2026:

• Written plan document is required before any reimbursements are made

• Nondiscrimination rules under IRC Section 105(h) apply: the plan cannot favor highly compensated employees in eligibility or benefits

• No employee contributions: Section 105 plans are entirely employer-funded

• Substantiation required: employees must submit proof of premium payments before reimbursement

• S-corporation shareholders who own more than 2% are treated as self-employed and receive reimbursements as taxable W-2 income (though they can deduct health insurance premiums on their personal return)

Medicare Secondary Payer Rules: A Critical Consideration for Active Workers

If you are actively working and your employer has 20 or more employees, Medicare Secondary Payer (MSP) rules require your employer group health plan to be the primary payer and Medicare to be the secondary payer. This has an important implication: if your employer is reimbursing your Medicare premiums and encouraging you to drop the group health plan in favor of Medicare, they may be violating MSP rules.

For employers with fewer than 20 employees, Medicare is the primary payer and the employer group plan is secondary. In this situation, it may make more financial sense for the employee to rely primarily on Medicare, and an ICHRA, QSEHRA, or Section 105 reimbursement arrangement is a legitimate way for the employer to help cover Medicare premium costs. If you are navigating this transition, our guide on enrolling in Medicare while still working explains the timeline and steps.

Retiree Benefits: Employer Reimbursement After You Leave Work

Retiree health benefits are a separate category from active employee benefits. Many large employers, particularly in the public sector, unions, and large corporations, offer retiree health plans that either supplement Medicare or reimburse Medicare premiums. These arrangements are generally not subject to the same MSP restrictions that apply to active employees.

Common retiree benefit structures include:

• Retiree HRA: The employer funds an account that reimburses Medicare premiums and other qualified medical expenses tax-free

• Employer-sponsored Medicare Advantage plan: Some large employers contract with an insurer to offer a group Medicare Advantage plan to retirees

• Medicare Part B premium reimbursement: Some pension plans include a flat monthly reimbursement for Part B premiums as part of the retirement benefit

• Medigap group plan: Some employers offer group Medigap coverage to retirees at lower rates than individual policies

If you are transitioning from employer coverage to Medicare as a retiree, understanding your enrollment periods is critical to avoiding late enrollment penalties. You have an 8-month Special Enrollment Period after your employer coverage ends to sign up for Part B without penalty.

Tax Implications of Employer Medicare Premium Reimbursement

Frequently Asked Questions