Circle of linked arms illustrates one's ability to coordinate employer-provided and Medicare benefits.

Coordinating employer-provided and Medicare benefits

Turning 65 doesn’t necessarily mean that Medicare is your only option for health coverage moving forward. In fact, health insurance can come from multiple sources. This includes COBRA, the Federal Employees Health Benefits Program, TRICARE, and perhaps most commonly, employer-provided health plans. If you will still be working after turning 65, you’ll have the opportunity to choose among a few healthcare coverage options. Some people in this situation will decide to delay their enrollment, using a Special Enrollment Period to sign up after retiring. Others will elect to drop their employer-provided coverage and begin relying solely on Medicare. Coordinating employer-provided and Medicare benefits is also common. Thanks to Medicare’s coordination of benefits system, this approach doesn’t require you to do much, if any, of the actual coordinating. Ultimately, the best choice for you will depend on your health needs, budgetary considerations, and other factors.

Should I wait until after I retire to sign up for Medicare?

More and more people are extending their time in the workforce. You aren’t required to give up your employer-based health coverage simply because your age qualifies you for Medicare. If you or your spouse is still working for a company with more than 20 employees, and you are covered by a health plan through that employer, you likely qualify for a Special Enrollment Period when you do decide to switch over to Medicare. This is because plans provided by companies with more than 20 employees are typically considered “qualifying” or “creditable” coverage.  In this case, your employer-based plan is considered the “primary payer,” and you can wait to enroll for Part B without penalties. The employer should be able to tell you if its health plan qualifies as “creditable”.

If, on the other hand, that employer has fewer than 20 employees, their coverage may not be considered “creditable”. In Medicare’s view, having non-creditable coverage is the same as having no coverage at all; you would still face late enrollment penalties when you sign up for Medicare Part B. It is also worth noting that, in this case, the employer plan would be considered the “secondary” payer,” and they would not pay for any services Medicare covers. This means that, if you had not enrolled in Medicare, you would be left holding the bill for those services.

You can learn more about Special Enrollment Periods, and whether you qualify for one, in the article below.

Most people who elect to delay Part B will still sign up for Part A when they become eligible. This is because most people are eligible for premium-free Part A, and there’s really no financial downside to doing so. This also ensures that Social Security will have a record of your decision to delay your enrollment in Part B.

Just because you have creditable coverage and qualify for delaying your enrollment in Medicare without any penalty, however, doesn’t necessarily mean that you’ll want to take advantage of it. Several factors, including premiums, your specific health needs, and the size of your company will likely factor into your final decision.

Should I drop my employer-based coverage when I enroll for Medicare?

You always have the option to drop your employer-provided plan once you become eligible for Medicare. That being said, you’ll want to compare Medicare’s costs and benefits to those you are currently receiving before deciding. Depending on your health needs, you may find that keeping both coverage sources may not be necessary, and that Medicare is the more affordable option.

However, this isn’t the case for everyone. Here are just a few things to consider before you drop your employer-based coverage:

  • Original Medicare does not cover the costs of any prescription drugs you are taking. This means you will also want to enroll in a Part D plan during your enrollment period. Even if you’re not currently taking any prescriptions, it’s likely you will in the future. Like Part B, Medicare Part D charges penalties for delayed enrollment.
  • Additionally, your employer is forbidden from offering additional health benefits to supplement your Medicare coverage; you would need to purchase a Medicare Supplement plan if you have health needs not covered under Original Medicare.
  • If any family members are covered by your employer-provided plan, they will lose coverage when you make the switch.
  • If you opt-out of your employer-provided plan, you probably won’t be able to reverse your decision later.

What if I want to keep my employer-based coverage AND enroll in Part B?

You can maintain your coverage from your employer-provided plan and enroll for Medicare when you become eligible. Coordinating employer-provided and Medicare benefits might sound complicated, but Medicare’s coordination of benefits system makes this approach fairly seamless.

What is the coordination of benefits system?

The coordination of benefits system was created to prevent Medicare from using taxpayer dollars to pay for services that are covered by other insurance. It also makes the process of paying for various medical services a lot easier, particularly on those receiving care.

Without the coordination of benefits system, people with multiple coverage sources would be responsible for keeping track of each cost. Furthermore, they would also have to ensure that the appropriate payer made necessary payments on time.

Fortunately, the coordination of benefits system helps to coordinate coverage for those with multiple payers by establishing rules for which of them pays first, second, third, and so on.

When does my employer-provided plan pay first?

In general, if the employer providing your coverage has more than 20 employees, the employer-based plan will pay first. If your entire bill was not covered, secondary payments will fall to Medicare. If the balance is not covered by Medicare, you will be responsible for paying the difference. This is, of course, unless you have additional forms of coverage that act as third or fourth payers.

When does Medicare pay first?

Medicare is generally considered the primary payer if your employer has fewer than 20 employees. Your employer-based coverage acts as the second payer. The plan is responsible for paying the remaining balance of any medical bills (up to the plan’s coverage limits).

However, if your employer joins forces with other employers or organizations to sponsor a group plan, and any one of those other employers has more than 20 employees, Medicare would be considered the second payer.

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Read our quick-start guide for help, including which questions you should be asking as you approach retirement.

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