- August 31, 2020
One of the most common questions we hear from people approaching Medicare eligibility is this: “How does an employee group plan work with Medicare?” In other words, you’re approaching Medicare eligibility but are still working and on a group plan. In this case, should you start Medicare at 65, and if so, how will it coordinate with your group plan? Today, we’re going to answer these questions by diving into five different issues regarding employee group plans and Medicare. Let’s get started.
How Many Insureds Are In the Group?
The size of your group plan (i.e. how many people are in it) will determine whether or not you’re going to consider going on Medicare while you’re still working.
20 or More Insureds: Group is 1st - Medicare is 2nd
Here’s how it works: If there are 20 or more people insured in your group plan, the group plan will be in the first payor position, and Medicare will be in the second payor position. In other words, if you’re in a group of 20+ people and you have a medical claim, the bill will be sent to your group plan first. The group plan will cover their portion and if there’s still a balance, they’ll send it to Medicare for payment consideration.
This means if you’re in a group plan with 20 or more people, you may want to stay on the group plan and wait until you retire to go on Medicare. Why? When you enroll in Medicare A and B, you’ll have to start paying the monthly Part B premium. For most people in 2022, this amount is $170.10 per month. And if you’re already paying two or three hundred dollars per month (out of your paycheck) for your group plan, it probably isn’t worth it to go on Medicare since they will only pay second to your group plan, anyway.
Keep in mind, if you’re in a group of 20 or more, you do not have to go on Medicare. Oftentimes people are pressured by H.R. departments and even coworkers to enroll in Medicare when they turn 65, but the truth is, if you’re covered by a 20+ insured group plan and you like the price and the coverage, you don’t need to get on Medicare yet.
19 or Less: Medicare is 1st - Group is 2nd
If you’re employed by a smaller company and only 19 people or less are insured by the group plan, then Medicare will be in the first payor position and the group plan will be second. So when you have a medical bill, Medicare will pay the main portion of the bill, then send the rest of the balance to your employer plan.
Once again, when you enroll in Medicare, you are responsible to pay a Part B monthly premium. This year the premium for most people is $170.10 per month. So in addition to paying your group plan premiums (out of your paycheck), you’ll also have to pay Medicare premiums. In this case, since Medicare is in the first payor position, it’s typically best to drop your group plan and enroll in Medicare. If you are in a small group plan, the company has the right to make you enroll in Medicare. If they do this, we would definitely suggest dropping the group plan and going on Medicare.
Part B Date is Critical
When you enroll in Medicare A and B, you’ll enter a six-month period called the Medigap Open Enrollment Period (OEP). Let's suppose your birthday is January 3rd, 1956, meaning you’ll turn 65 in January of 2021. Now let’s say you’re going to enroll in Medicare A and B in January of 2021. This means your Part A and Part B effective dates will be January 1, 2021. The Part B effective date is critical because it signifies the beginning of your Medigap open enrollment period.
The Medigap OEP begins on your Part B effective date and lasts for the next six months. During this period, you can enroll in any Supplemental plan you want, regardless of your health conditions. Normally, Supplemental (also called Medigap) carriers require you to medically qualify before purchasing the plan, meaning if you have pre-existing health conditions, you may not be able to purchase a Supplemental plan. But during the six months following your Part B effective date, you are free to enroll in any Supplemental plan you want, no health questions asked.
If you decide to enroll in Medicare while you’re still working and within a group plan, remember that your six month Medigap Open Enrollment Period only lasts for six months. So if you don’t purchase a Supplemental plan within the first six months of your Part B effective date, you will have to medically qualify for a Supplemental plan in the future. And if you have health problems, they could deny you coverage.
Now let’s look at what your Medicare options are if you’re still covered by an employee group plan. Keep in mind, all of this information applies to spouse’s covered by a group plan. So if your spouse is the employee and you’re simply covered by the plan, your Medicare options are still the same.
As long as you’re in a group of 20 or more people, the employer cannot make you enroll in Medicare. So if you’re still working at 65 and are covered by a large (20+) group plan, you do not have to enroll in Medicare. If someone tells you differently, don’t listen to them, they are mistaken. If, however, you are in a group of 19 or less, your employer can make you enroll in Medicare. Since Medicare pays first for small group insureds, some employers make their employees enroll in Medicare at 65.
Enroll in A Only
If you’re still working at 65 and are covered by a group plan, the second option you have is to enroll in Medicare A only. What does this mean? Medicare Part A is for inpatient services (e.g. hospital stays, inpatient surgeries, etc.). If you’re in a 20+ group plan and enroll in Medicare A only, Medicare will pay second (after your group plan) for your inpatient care.
There is one group of people who should not enroll in Medicare Part A if they’re still working. This group of people are those who are in a group of 20 or more and are contributing to a health savings account (HSA). When you enroll in any form of Medicare (A only or both A and B), you can no longer contribute to your HSA. If you're going to keep working and you have an HSA, it’s smart to keep contributing to that future medical expense fund since it is a tax advantage account. So if you have an HSA, we would suggest waiting to enroll in Medicare until you retire.
Enroll in A & B - Stay in Group Plan
The third option you have while still working is to enroll in Medicare A and B and stay in your group plan. Medicare A is free for anyone who has paid into the Medicare tax system for at least 40 quarters (or 10 years of work). Part B, on the other hand, comes with a monthly premium as we mentioned earlier. For most people, this monthly premium is $170.10. Sometimes it doesn’t make sense to pay for your group plan while also paying the part B premiums (especially if you’re in a large group since Medicare pays second). Further, once you enroll in Medicare Part B, your six-month Medigap open enrollment period begins, meaning if you ever want to purchase a Supplemental plan, you’ll need to do so within the next six months or you may not medically qualify for one in the future. That’s why, if you’re unhappy with your group plan and want to enroll in Medicare A and B while you’re still working, we typically advise people to drop the group plan, enroll in Medicare and purchase a Supplemental plan.
If, however, you don’t like your group plan coverage and it makes financial sense, you can enroll in Medicare A and B while staying in your group plan.
Enroll in A & B - Drop the Group Plan
Finally, if you’re still working at 65, you can enroll in Medicare A and B and drop your employer group plan. If you’re not happy with your coverage at work for some reason (high deductibles, copayments, or monthly premiums), then this option may be the best one for you. Just make sure to take into account who else might be hurt if you drop the group plan. If you have a younger spouse or children on the group plan, dropping it might mean they no longer have coverage, so take this into account.
Also, if you’re taking expensive, brand-name medications, it may not be in your best interest to drop your group plan and go on Medicare. Why? While Medicare will certainly cover prescription drugs, if you are on expensive meds and reach something called the donut hole stage, you will end up paying much more for your medications out of your own pocket. Group plans don’t have a donut hold stage like Medicare, so again, if you are one expensive meds, you may want to stay on your group plan for as long as possible.
We understand how difficult making the right Medicare decisions can be. To take the next step, watch our full course here, or schedule a free one-on-one call with a certified Medicare School Guide who can answer your questions, compare plans options, and even help you enroll. Click here to get started.