Working after 65? What you need to know about employer insurance and Medicare

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With so many people continuing to work once they turn 65, the interaction of employer insurance and Medicare is important and 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. The single exception is for people turning 65 who have end-stage renal disease; they can be required to get Medicare.

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 the current 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 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.

An earlier column provides additional details on employee health coverage for those eligible for Medicare. I’ve also written an explanatory piece on the circumstances under which someone with Medicare can be denied continued participation in a health savings account, including the usually unintentional disqualification that occurs when a person claims Social Security benefits.

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 language from Medicare’s official rules. (To avoid confusion, group health plans, GHP, and large group health plans, LGHP, are Medicare terms that both relate to plans with 20 or more covered employees.)

An employer or other entity is prohibited from offering Medicare beneficiaries financial or other benefits as incentives not to enroll in or to terminate enrollment in a GHP or LGHP that is or would be primary to Medicare. This prohibition precludes the offering of benefits to Medicare beneficiaries that are alternatives to the employer’s primary plan (e.g., prescription drugs) unless the beneficiary has primary coverage other than Medicare. An example would be primary plan coverage through his/her own or a spouse’s employer. This rule applies even if the payments or benefits are offered to all other individuals who are eligible for coverage under the plan. It is a violation of the Medicare law every time a prohibited offer is made regardless of whether it is oral or in writing. Any entity that violates the prohibition is subject to a civil money penalty of up to $5,000 for each 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.