With so many people continuing to work once they turn 65, the interaction of employer insurance and Medicare is important but often confusing. It’s at the top of my list of reader questions, with most coming from people who are or soon will be eligible for Medicare. Here’s what they want to know:

• My employer tells me it will force me to get Medicare. Can they do that?
• I don’t plan to stop working, and I like my employer health insurance. Do I need to get Medicare?
• I don’t plan to stop working, and I hate my employer health insurance. Can I get Medicare?
• My employer says they’ll help pay for my Medicare if I will drop my employer insurance. What’s allowed?

Medicare has different rules for employer health insurance plans depending on whether the plans cover more or fewer than 20 employers. We’ll call them “large” and “small” plans here. Even workplaces with fewer than 20 insured employees may qualify as large plans if they’re linked up with a multi-employer group plan. I’ve reviewed these rules carefully with Medicare.

Large vs. small employers

If you work at a small employer plan, your employer is permitted to require you to get Medicare when you turn 65. At that time, Medicare will become your primary health insurer. Your employer also has the option to cancel your workplace plan or retain it as a secondary payer of covered insurance claims. This distinction is important because it can affect the package of Medicare plans you may need, especially whether you need a Medigap supplement plan.

It can be a smart financial move to get Medicare, in addition to employer coverage or in place of it.

If you work at a large employer plan, your employer cannot treat you differently than younger employees. You and, if applicable, your spouse, must continue to be offered employer health insurance. These rules are very clear. If an employer with a large health plan tells you that you must get Medicare at age 65, it is breaking the law.

Employees with access to large employer-sponsored plans do not have to get Medicare, but they may do so if they wish. Historically, employee plans were so comprehensive and affordable that it seldom made sense for someone to get Medicare. However, rising health care expenses have led many employers to reduce the percentage of the coverage they pay, with many adopting high-deductible plans.

Some high-deductible plans require people to fork over the gross national product of Whatsupistan before their insurance kicks in. For these folks, it can be a smart financial move to get Medicare, either in addition to their employer coverage or in place of it.

Anyone considering this decision should contact their employer plan. They should ask two primary questions:

1. Can I drop employer coverage? (If so, please provide me details of any adverse consequences.)
2. If I keep employer coverage, does it continue as the primary payer of covered insurance claims?

Some plans disallow employees from re-enrolling if they drop coverage. As for which insurance plan pays first, the distinction between whether a plan is the primary or secondary payer of claims can have enormous consequences for your wallet and your peace of mind.

Where a person has more than one health insurance plan, “coordination of benefits” issues can become complicated and important.

Medicare’s basic rules

Here’s a rundown of rules, pulled from page 21 of the 2023 edition of “Medicare & You“:

• If you have retiree insurance (insurance from your or your spouse’s former employment), Medicare pays first.
• If you’re 65 or older, have group health plan coverage based on your or your spouse’s current employment, and the employer has 20 or more employees, your group health plan pays first.
• If you’re 65 or older, have group health plan coverage based on your or your spouse’s current employment, and the employer has fewer than 20 employees, Medicare pays first.
• If you’re under 65 and have a disability, have group health plan coverage based on your family member’s current employment, and the employer has 100 or more employees, your group health plan pays first.
• If you’re under 65 and have a disability, have group health plan coverage based on your or a family member’s current employment, and the employer has fewer than 100 employees, Medicare pays first.
• If you have group health plan coverage based on your or a family member’s employment or former employment, and you’re eligible for Medicare because of End-Stage Renal Disease (ESRD) your group health plan will pay first for the first 30 months after you become eligible to enroll in Medicare. Medicare will pay first after this 30-month period.

Can an employer help with Medicare costs?

The issue of whether an employer can provide financial assistance for an employee’s Medicare expenses is very clear for large employer plans but can be fuzzy for small employer plans.

In the case of large employer plans, the answer is an unequivocal “no.” Here’s the formal language, buried deep within Section 1863 of Title 42 of the United States Code:

“(C) Prohibition of financial incentives not to enroll in a group health plan or a large group health plan.—It is unlawful for an employer or other entity to offer any financial or other incentive for an individual entitled to benefits under this title not to enroll (or to terminate enrollment) under a group health plan or a large group health plan which would (in the case of such enrollment) be a primary plan (as defined in paragraph (2)(A)). Any entity that violates the previous sentence is subject to a civil money penalty of not to exceed $5,000 for each such violation.”

If you work at a place with a large employer health plan, it is illegal for your employer to offer you any inducement to get Medicare and drop the employer’s plan. Based on my mailbag, such illegal offers are not uncommon. While you may find the offer attractive, just keep in mind that it’s not allowed.

It is illegal for some employers to offer you any inducement to get Medicare and drop the employer’s plan.

The story with small health plans is not so clear. In some cases, providing employees with financial help for their Medicare expenses is just fine. Given that employees at such firms have to get Medicare anyway, such supportive arrangements are more understandable than for employers with large health plans.

However, employers wishing to provide such subsidy programs have to be careful to make sure their offers are properly constructed. These rules are contained in IRS Notice 2015-17, which is written in language only a lawyer charging high fees could love. Here’s the “simplified” version provided by a Medicare spokesperson:

In order for the small employer with less than 20 employees to reimburse their employees for their Medicare Parts B and D and Medigap premiums, the following conditions must be met:

• The employer offers a group health plan (other than the Health Reimbursement Account (HRA), Flexible Spending Account (FSA) or Health Savings Account (HSA)) to employees who are not eligible for Medicare;
• Funding for the employees enrolled in Medicare should be made through an HRA (or FSA or HSA);
• The employee receiving the payment through the HRA (or FSA or HSA) is enrolled in Medicare Part B or D;
• The HRA (or FSA or HSA) is available to all employees who are enrolled in Medicare Part B or D; and
• Under the terms of the HRA (or FSA or HSA), the employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA (or FSA or HAS) at least annually in which case the right to receive funds is forfeited.

What to do when you do want Medicare

 There will be no late-enrollment penalty when your group coverage ends and you do sign up for Medicare, assuming you do so within what’s called a special enrollment period, which is eight months long and begins when your employer coverage ends. Your Part A may cover some hospital costs not covered by your employer plan, but it will not help with Part B expenses.