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Medicare vs Employer Coverage: which is better


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Summary: You can have both Medicare and employer coverage at the same time. Which one pays first depends on coordination of benefit rules and your employer size.

The Bureau of Labor Statistics predicted that one of America’s fastest-growing working populations will be people 65 years old and older. Both economic factors and better health trends may contribute to longer careers. At the same time, most Americans qualify for Medicare at age 65, which used to be considered the traditional retirement age. If you’re eligible for Medicare coverage but also can count on your own or a spouse’s employer for health insurance, you will have some important choices to make.

Choosing between employer health plans and Medicare coverage

If you have job-based health insurance either through yourself or your spouse, you may consider delaying enrollment in Medicare Part B. Most people qualify for Medicare Part A without paying premiums anyway, so you might not have any incentive to delay enrollment. Part B does generally have a monthly premium. You need to find out if Medicare will penalize you for delaying enrollment.

Medicare has published information that should help inform you of your choice:

  • If your or a spouse’s employer has fewer than 20 employees, Medicare coverage pays before job coverage. You should enroll in Medicare Part A and B.
  • If your or a spouse’s employer has 20 employees or more, your company benefits department can tell you if your current coverage qualifies as group plan coverage under the IRS definition. In this case, you might have the option to delay enrollment in Medicare coverage without having to pay a penalty when you enroll later.

How Medicare and employer coverage can work together

If you have Medicare and employer coverage, you should take a moment to understand how these two plans work together. According to Medicare, the rules that govern this are called “coordination of benefits.” In this case, both employer and Medicare coverage are referred to as payers. The way your two health plans work together will depend upon which is the primary and which is the secondary payer.

When your employer pays first:

  • If you have group coverage and an employer with 20 or more employees,  your group health insurance will generally pay first up to its coverage limits. Your provider should submit a bill to Medicare for any unpaid portion of the bill.
  • As a simple example of having Medicare as the secondary payer, let’s say you had a doctor bill of $300, and your employer insurance paid $150. If you satisfied your Medicare deductible, Medicare might pay 80 percent but only up to 100 percent of the total bill. So, instead of having Medicare pay 80 percent, or $240, it would simply pay the balance of $150. In this case, both Medicare and employer coverage would pay the whole bill, but not all situations may work out like this simple one.

When Medicare pays first:

  • Alternatively, you may work for a smaller employer or not have a qualified group plan. In this case, your employee plan is secondary to Medicare coverage. The situation will work in reverse, with Medicare coverage processing the bill first and the employer plan second. If you qualify for Medicare but don’t have it, your job-related insurance company might refuse to pay.
  • If your employee insurance fails to promptly pay its share of the bill, medical providers may try to recover payment from your Medicare coverage. Sometimes, Medicare will make conditional payments and then work to recover these payments from your other insurer.

Medicare and Prescription Drug Coverage

While many employer-sponsored insurance plans cover prescription drugs, basic Medicare does not. You can use your employer coverage to pay for your prescription drugs while you are employed. After you retire and rely completely on Medicare, you can get prescription drug coverage through a private insurance company. Private insurance companies offer two types of Medicare prescription drug coverage:

  • A stand-alone Medicare Part D prescription drug plan that goes alongside Original Medicare Part A and Part B.
  • An all-in-one Medicare Advantage plan that covers your hospital benefits, medical benefits, and prescription drugs all in one convenient plan.

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