Should disabled Americans drop Medicare for employer insurance?

Roughly 10 million of the people receiving Social Security benefits are disabled. For those under the age of 65, being approved for Social Security Disability Income (SSDI) payments also includes eligibility for Medicare, usually after a two-year wait.

Despite being disabled, many SSDI recipients are able to work and thus become eligible for employer insurance plans. The coverage offered by employer plans has become more costly, leading many plans to adopt high annual deductibles that can raise out-of-pocket costs for employees. These changes have made it much more likely such employees will not drop Medicare but keep it in place, or in addition to an employer plan.

Here’s an email from Steve in Massachusetts that illustrates the issues and decisions that people with disabilities may face if they return to work.

“I am 44 years old, blind, and have had Medicare for about 10 years because of my disability. I did go back to work full-time a few years ago but have continued to pay for Medicare (Parts A and B). It is my only insurance right now, but the out-of-pocket costs are getting expensive.

As a result, I have recently gotten health insurance from my employer and I had planned to stop Medicare. I saw my doctor last week and told him the situation. He recommended that I not stop my Medicare because he said that it could be very hard to get it back, given that I am more than 20 years away from retiring. He recommended that I keep Medicare and look for a secondary insurance. I trust my doctor, but I do not think he is an insurance expert by any means!”

One-size-fits-all answers don’t work here. A person’s specific circumstances – age, health needs, insurance plans, and the like – are all different. What they do share is the need to understand how Medicare does and does not “work” with other insurance programs. This is a big-enough deal at Medicare that the program has an operations manual dedicated to what are called “coordination of care” rules.

Steve’s doctor deserves praise for at least thinking of this issue. Most doctors know very little about health insurance or the financial implications of their treatment. But Steve is right to want a second opinion about what his doctor told him!

Medicare rules permit a disabled person to reacquire Medicare coverage at any time prior to age 65. The issue here is whether, when the person re-enrolls, he would be subject to substantial late-enrollment penalties because he did not have continuous Medicare coverage.

For someone on Medicare who is not disabled, getting employer insurance clearly permits them to drop Medicare without encountering penalties upon re-enrollment. The same should hold for those with disabilities. However, I’ve encountered many illogical things about Social Security and Medicare, so I recommend that people contact Social Security to confirm how the agency would treat them.

In nearly all cases, the employer plan is the primary payer of covered claims and Medicare is what’s called a “secondary” payer.

If a person has a high-deductible plan with, for example, a $3,000 deductible, basic Medicare (Parts A and B) can be used to pay claims in the deductible phase of the coverage. Even with its monthly cost for most enrollees – the 2024 Part B premium is $174.70 —  Medicare can make sense in some situations.

Beyond high deductibles, Medicare also can help pay some of the covered expenses not fully paid by an employer plan. Usually, it does not make sense to get a Medicare Part D plan here or a Medigap supplemental plan. You would be paying for things your employer plan already covers.

Before making this decision, however, it’s important that anyone eligible for Medicare by virtue of age or disability ask their employer to certify that the employer’s drug coverage is at least as good as a typical Part D plan. If an employer plan does not meet this “credibility” test, then the person must get Part D. Employers are required to provide credibility statements annually.

One final point here is that anyone in this situation who must get a Part D plan need not also pay for Part B of Medicare, although they do need to sign up for premium-free Part A.

I am pretty sure that people with such options can get their coverage coordination questions answered by talking with someone in their employer insurance benefits office. I am also pretty sure, based on literally thousands of reader emails, that talking with their insurer has a popularity rating akin to having a root canal without anesthesia. Time and time again, the best advice I have is that people should speak first to their health insurers, not to me.