Understanding Employer Insurance and Medicare

If you are currently employed and will be eligible for Medicare soon, you probably have questions regarding what to do about your health care coverage. The best choice between Medicare and employer coverage depends on your circumstance.

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It can be beneficial to have both Medicare and employer coverage in some cases. In other cases, taking Medicare could make more sense than holding onto an employer’s policy.

First, you must understand how Medicare and employer coverage works together. Then, you can determine which coverage is right for you.

How Does Medicare Work with Employer Insurance?

When you have both Medicare and employer coverage, the size of your employer will determine how your Medicare benefits will coordinate with your employer coverage. If you become eligible for Medicare at age 65 while working for an employer with 20 or more employees, your group plan will be primary, and Medicare will be secondary.

In this scenario, most seniors choose to sign up for Medicare Part A because it is premium-free for those who pay Medicare tax for sufficient quarters. Additionally, if you are currently collecting Social Security Income, you will automatically enroll in Medicare Part A. After 24 months, you cannot collect Social Security Income (SSI) benefits without signing up for Medicare Part A.

If you require care at a hospital, your Medicare Part A benefits will lower your costs. For example, imagine your employer’s group insurance has a $4,000 hospital deductible. In this case, it makes sense to enroll in Medicare Part A for a lower deductible.

For your outpatient and prescription drug coverage, a group health plan from an employer with 20 or more employees is creditable coverage. Coverage creditable for Medicare safeguards you from paying late enrollment penalties for Medicare Part B and Part D when you enroll in the future.

Can I Keep My Employer Health Insurance with Medicare?

Regardless of your employment status, it makes sense to enroll in Medicare Part A as soon as you become eligible. As Medicare Part B requires seniors to pay a premium, you may wish to delay enrollment if you have group insurance. Thus, you can keep Medicare and employer coverage.

The size of your employer determines whether your coverage will be creditable once you retire and are ready to enroll in Medicare Part B. If your employer has 20 or more employees, Medicare will deem your group coverage creditable. On the other hand, if your employer has fewer than 20 employees, coverage is not creditable.

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If you are eligible for Medicare and do not have creditable coverage, you may incur late enrollment penalties. When you leave your group health coverage, the insurance carrier will mail you a creditable coverage letter to provide proof of coverage to Medicare.

Additionally, if you retire and enroll in Medicare and then return to work, you can pause your Medicare Part B benefits and reenroll in the group coverage. Then, you can enroll back into Medicare Part B with no penalties when you retire again.

Medicare and Employer Coverage: Who Pays First?

If your employer has fewer than 20 employees, Medicare becomes primary. Thus, your employer coverage pays second when you have both Medicare and coverage through an employer with fewer than 20 employees.

If your employer has more than 20 employees, Medicare will pay secondary to your group coverage. With small group insurance, we highly recommend enrolling in both Medicare Part A and Part B as soon as you are eligible. If you do not enroll in Medicare once you are eligible, your small employer coverage can refuse to pay your claims. In this case, having Medicare and employer coverage is essential. Thus, we recommend enrolling in Medicare Part B to avoid any gaps in coverage.

Additionally, if you do not enroll in Medicare Part B, you will need to pay the late penalty because your group insurance will not be creditable coverage for Medicare.

Employer Coverage and Medicare Part D

If your employer group insurance includes creditable prescription drug coverage, you can delay Medicare Part D enrollment with no penalty. In this way, it is similar to Medicare Part B.

Having Medicare with this coverage may not be helpful when you have prescription drug benefits through your employer, as the coverages will not work together. Always compare your group insurance to the benefits and cost of Original Medicare + a Medicare Supplement (Medigap) plan + Medicare Part D. Often, it is more cost-efficient and beneficial to leave group insurance and enroll in Medicare, adding a Medicare Supplement plan and a Medicare Part D plan.

Medicare Premiums and Employer Contributions

According to the Centers for Medicare & Medicaid Services (CMS), it is illegal for employers to contribute to Medicare premiums for an employee with Medicare and employer coverage. However, there is an exception for employers who set up a 105 Reimbursement Plan for all employees.

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The reimbursement plan deducts money from the employees’ salaries to buy individual insurance policies. Beneficiaries who participate can receive tax-free reimbursements for their Medicare Part B premium.

A well-known Section 105 plan is a Health Reimbursement Account. An HRA reimburses eligible employees for their Medicare premiums and other medical costs.

Does Medicare Work with Health Savings Accounts?

When enrolled in any Part of Medicare, you cannot contribute to a Health Savings Account (HSA). Likewise, your employer cannot contribute to your HSA once any Part of your Medicare is active.

So, if your group offers an HSA plan when you have Medicare and employer coverage, you are not eligible for the HSA option. If you make HSA contributions past your Medicare enrollment, you can face profound tax implications.

If your spouse has coverage through your group insurance, they can still contribute if their Medicare is not active, and contributions are made in their name. The good news is that you can use the funds saved in your HSA to pay for any medical expenses while you are on Medicare.

What Forms Do I Need to Show Creditable Coverage from an Employer?

You will need your employer to fill out the CMS-L564 form. This form is a request for employment information and will provide proof of creditable coverage to Medicare. Once the employer completes Section B of the form, send in the document with your application to enroll in Medicare. You can avoid the Medicare Part B penalty if you do this correctly.

What Should I Do When Turning 65 and Still Working?

If you plan to continue working past 65, you should determine whether your coverage through your employer is creditable for Medicare before making any decisions. With creditable coverage, you may delay Medicare Part B for as long as you continue to have creditable coverage.

If your coverage is not creditable, it is beneficial to enroll in Medicare with your employer coverage. Either way, we recommend taking Medicare Part A, especially if you are eligible to receive it premium-free.

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If your coverage through your employer is not creditable, you should enroll in Medicare Part B as soon as possible. As stated above, one example of coverage that is not creditable is employer group coverage with fewer than 20 employees.

Unfortunately, many assume that because they have coverage through their job, they do not need to sign up for Medicare, Take Bob, for example. Bob never knew about the Medicare Part B penalty until it was too late.

Before then, he assumed Medicare Part A and his employer coverage would suffice between ages 65 and 70. He thought he would be able to enroll in Medicare Part B normally, with no issues. Watch the video below to see Bob’s story and how to avoid making the same mistake as him.

Can I Delay Medicare Part B After I Retire?

Once you retire, employer coverage is no longer creditable for Medicare. Suppose your employer allows you to remain on group benefits through a retiree program. In this case enrolling in Medicare Part B will avoid the late enrollment penalty.

Once you retire and choose to keep Medicare and employer coverage, Medicare Part B will become primary. Thus, your employer coverage will be secondary. Once retired, many seniors find it more suitable to drop employer coverage and enroll in a Medicare Supplement plan.


Can an employer force an employee to enroll in Medicare?
An employer can never force you to drop your group coverage and enroll in Medicare once you turn 65. You can always choose to have Medicare and decline your group plan, but your employer can never force that decision.
Can I drop my employer's health insurance for Medicare?
You can drop your employer’s health plan for Medicare if you have employer coverage. Combining a Medigap plan with Medicare is often more affordable.
Should my spouse stay on my employer group plan or enroll in Medicare?
It often costs less for your spouse to enroll in Medicare versus staying on your employer plan. The reason is that most employers do not help pay for the costs of spousal insurance. If your spouse’s insurance costs you hundreds of dollars a month, they should consider enrolling in Medicare.
Do I need Medicare if I have employer insurance?
Medicare Part A is free for most people, so taking it makes sense. Because Medicare Part B comes with a premium, you may delay this outpatient coverage until you are ready to retire – if your employer health insurance is creditable for Medicare.
Who pays for Medicare if you are working?
If you are employed and on Medicare, you are responsible for covering your Medicare premiums. However, in certain circumstances, your employer may be able to reimburse your premiums.

How to Transition from Employer Health Insurance to Medicare

It is essential to correctly transition from employer coverage to Medicare to avoid penalties or a lapse in coverage. In many cases, you should not undertake this change alone. It is vital to work with a Medicare expert who has your best interests in mind.

With so many plans to choose from, comparing your best options is key to enrolling in the right policy. At MedicareFAQ, we help beneficiaries switch from employer coverage to Medicare every day. We take pride in knowing our clients are satisfied and confident in their chosen coverage.

To compare the top-rated plans in your area with one of our licensed Medicare experts, call the phone number above or complete our online rate comparison form. We are excited to help you on your journey with Medicare.

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MedicareFAQ is dedicated to providing you with authentic and trustworthy Medicare information. We have strict sourcing guidelines and work diligently to serve our readers with accurate and up-to-date content.

  1. CMS Forms, CMS. Accessed April 2022.
  2. How Medicare Works with Other Insurance, Medicare. Accessed April 2022.
  3. Health Reimbursement, CMS. Accessed April 2022.
  4. Retiree Insurance, Medicare. Accessed April 2022.

Jagger Esch

Jagger Esch is the Medicare expert for MedicareFAQ and the founder, president, and CEO of Elite Insurance Partners and Since the inception of his first company in 2012, he has been dedicated to helping those eligible for Medicare by providing them with resources to educate themselves on all their Medicare options. He is featured in many publications as well as writes regularly for other expert columns regarding Medicare.

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