Medicare and Employer Coverage at 65: Who Pays First and Whether to Delay Part B

Turning 65 while still working, or while covered by a working spouse's plan, raises a set of questions: Do I need Medicare now? Will my employer plan still pay? Can I keep contributing to my HSA? The answers depend on a few facts, mainly the size of the employer and whether the coverage comes from current employment.

The short version

• If the employer has 20 or more employees, the group health plan generally pays first for a worker 65 or older, and Medicare pays second. Many people in this situation delay Part B without penalty.
• If the employer has fewer than 20 employees, Medicare generally pays first. If you don't enroll in Part B, the employer plan may pay very little.
• COBRA, retiree coverage, and Marketplace plans aren't based on current employment. Medicare generally pays first, and they don't protect you from Part B penalties.
• Many people take premium-free Part A at 65 even while working, but that can end HSA eligibility.
• After employment or coverage ends, you have eight months to enroll in Part B without penalty.

Who pays first

The insurer that pays first is called primary; the second is secondary and may pay some of what's left. The rules depend on the type of coverage.

Disability-based and ESRD-based Medicare have different rules, including a 100-employee threshold for some disability situations and a coordination period for ESRD.

When delaying Part B can make sense

If you're covered by a large employer's plan through current employment:

• The employer plan pays first, so Part B would mostly be secondary coverage.
• You'd pay the Part B premium for limited benefit.
• You can enroll later during the Special Enrollment Period without penalty.

Compare the employer plan's costs and benefits with Medicare's. Some people find Medicare plus supplemental coverage cheaper or better than their employer plan and choose to switch anyway. Check how your employer plan treats spouses and dependents first, because leaving the plan can affect family members.

When delaying Part B is risky

• Small employer with fewer than 20 employees: Medicare is primary. The employer plan may pay as if Medicare had paid, leaving you with large bills if you skipped Part B. Ask the plan administrator directly.
• COBRA: doesn't count for the Special Enrollment Period. If you rely on COBRA and skip Part B, you may face penalties and coverage gaps.
• Retiree coverage: generally requires you to have Parts A and B; it usually pays secondary.

The HSA trap

If you contribute to a health savings account, Medicare enrollment matters:

• Once you're enrolled in any part of Medicare, including premium-free Part A, you generally can't contribute to an HSA.
• If you sign up for Medicare after 65, Part A coverage is usually backdated up to six months, but not earlier than your first month of eligibility. Contributions made during that retroactive period can become excess contributions.
• Applying for Social Security benefits after 65 automatically enrolls you in Part A, which also ends HSA eligibility.

Many people stop HSA contributions about six months before they plan to enroll in Medicare. You can still spend existing HSA money on qualified expenses after you're on Medicare, including some Medicare premiums. A tax professional can help with the timing.

Drug coverage

If you delay Part D while on an employer plan, make sure the employer's drug coverage is creditable. The plan should send a yearly notice. If it isn't creditable, you may face a Part D penalty later; see Medicare enrollment periods and late penalties.

When employer coverage ends

Note that your Medigap open enrollment six-month window begins the month you're 65 or older and enrolled in Part B. Delaying Part B while on employer coverage also delays this window, which can be helpful. See Medigap underwriting rules.

The takeaway

At 65 with employer coverage, the key questions are whether the coverage is from current employment and whether the employer has 20 or more employees. Large-employer coverage usually pays first and lets you delay Part B safely. Small-employer coverage, COBRA, and retiree plans usually don't. Watch HSA contributions around Medicare enrollment, and sign up within eight months when coverage ends.

Sources

• Medicare.gov: When does Medicare coverage start?
• Medicare.gov: Avoid late enrollment penalties
• CMS: Original Medicare (Part A and B) eligibility and enrollment
• SSA: Medicare (publication)