Medicare and Employer Insurance: When to Delay, When to Enroll

If you're turning 65 but still working with employer health insurance, you face an important decision: enroll in Medicare now or delay it? The answer depends on your employer's size, the quality of your current coverage, and whether you have a Health Savings Account (HSA). Getting this wrong can cost you thousands in penalties or leave you with gaps in coverage.

This guide explains exactly how Medicare works with employer insurance, when you can safely delay enrollment, and what steps to take when you eventually transition to Medicare.

Why Employer Size Matters

The single most important factor in deciding whether to enroll in Medicare while working is your employer's size. Federal law establishes which insurance pays first (primary) and which pays second (secondary) based on the number of employees.

Employers With 20 or More Employees

If you work for a company with 20 or more employees:

• Employer insurance is primary - It pays first for your medical bills
• Medicare is secondary - If you enroll, it only pays after your employer plan
• You can delay Part B - No penalty as long as you're covered by employer insurance
• You can delay Part D - Employer drug coverage is typically creditable

For most people in this situation, it makes sense to keep employer coverage and delay Medicare Part B. You'll avoid the Part B premium ($185/month in 2025) while maintaining good coverage through work.

Employers With Fewer Than 20 Employees

If your employer has fewer than 20 employees:

• Medicare is primary - It pays first, even if you have employer coverage
• Employer insurance is secondary - It only covers what Medicare doesn't
• You should enroll in Part B at 65 - Otherwise, you'll have significant coverage gaps
• Delaying will result in penalties - The late enrollment penalty applies

How Medicare Coordinates With Employer Insurance

When you have both Medicare and employer coverage, one plan pays first (primary) and the other pays second (secondary). Understanding this coordination is essential to avoiding coverage gaps.

Should You Enroll in Part A While Working?

Medicare Part A (hospital insurance) is premium-free for most people, so many assume there's no downside to enrolling. However, there's one important exception:

• If you have an HSA: Don't enroll in Part A. You cannot contribute to an HSA once enrolled in any part of Medicare.
• If you don't have an HSA: Go ahead and enroll in Part A at 65. It provides backup coverage at no cost.

HSA and Medicare: The Critical Rule

Health Savings Accounts (HSAs) offer triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses. But there's a catch with Medicare.

HSA Strategy for Those Turning 65

1. Stop contributions 6 months before enrolling - When you enroll in Part A, coverage is retroactive up to 6 months. To avoid IRS penalties, stop HSA contributions 6 months before your Part A enrollment date.
2. You can still use HSA funds - After enrolling in Medicare, you can withdraw from your HSA tax-free for qualified medical expenses, including Medicare premiums. You just can't contribute more.
3. Consider maximizing before 65 - If you're approaching 65, consider making catch-up contributions ($1,000 extra for those 55+) while you still can.

Can You Keep Your HSA After Medicare?

Yes. Your HSA doesn't go away when you enroll in Medicare. You can:

• Keep the account indefinitely
• Use funds for Medicare premiums (Parts A, B, C, D - but not Medigap)
• Use funds for medical expenses, prescriptions, and dental/vision care
• Let the balance grow tax-free

When You Can Safely Delay Medicare

You can delay Medicare Part B (and Part D) without penalty if you have coverage through:

• Current employment with an employer of 20+ employees
• Spouse's current employment with an employer of 20+ employees
• COBRA does NOT count - This is not current employment coverage
• Retiree benefits do NOT count - You're no longer actively employed

Benefits of Delaying

• Avoid Part B premium ($185/month in 2025)
• Maintain HSA contribution eligibility (if not enrolled in Part A)
• Keep existing doctor network without Medicare restrictions
• Employer may cover spouse and dependents

Reasons You Might Enroll Anyway

• Your employer plan has high deductibles or poor coverage
• You want Medicare as secondary insurance for added protection
• You're planning to retire soon anyway
• Your employer offers to pay your Medicare premiums

Special Enrollment Period When You Lose Coverage

When your employer coverage ends (due to retirement, job loss, or dropping the plan), you qualify for a Special Enrollment Period (SEP) to join Medicare without penalties.

How the SEP Works

• Duration: 8 months after employer coverage ends OR employment ends (whichever comes first)
• Coverage start: Part B begins the month after you enroll
• No penalty: As long as you enroll during the SEP, no late penalties apply

Steps to Take When Employer Coverage Ends

1. Request proof of coverage - Get a letter from HR confirming your coverage dates
2. Enroll in Part B - Contact Social Security or visit SSA.gov
3. Choose Part D or Medicare Advantage - Decide between Original Medicare with a standalone drug plan or Medicare Advantage
4. Consider Medigap - If choosing Original Medicare, apply for a Medigap policy during your 6-month open enrollment window
5. Don't rely on COBRA long-term - COBRA is expensive and doesn't protect you from Medicare penalties

Avoiding Late Enrollment Penalties

If you delay Medicare without qualifying coverage, you'll face permanent penalties when you do enroll.

Part B Late Enrollment Penalty

• Amount: 10% of the premium for every 12-month period you delayed
• Duration: You pay this penalty every month for as long as you have Part B
• Example: Delay 3 years = 30% higher premium for life

Part D Late Enrollment Penalty

• Amount: 1% of the national base premium per month you delayed
• Duration: Permanent - added to your premium forever
• Example: Delay 24 months = ~$8/month extra for life

What Counts as Creditable Coverage?

To avoid penalties, your alternative coverage must be "creditable" - meaning it's at least as good as Medicare. Examples include:

• Employer or union group health plans (for Part B)
• Employer drug coverage that's certified as creditable (for Part D)
• TRICARE
• VA health benefits

Your employer must send you an annual notice stating whether your drug coverage is creditable. Keep these notices - you'll need them to prove you shouldn't pay the Part D penalty.

Coverage Through a Spouse's Employer

If you're covered through your spouse's employer plan, the same rules apply:

• 20+ employees: Spouse's plan is primary; you can delay Medicare
• Fewer than 20: Medicare is primary; enroll at 65
• When spouse retires: You get an 8-month SEP to enroll in Medicare

Common Mistakes to Avoid

Mistake 1: Thinking COBRA Protects You

COBRA is continuation of your employer coverage after you leave, but it's NOT considered current employment coverage. If you're 65+ and relying on COBRA instead of Medicare, you may face late enrollment penalties when COBRA ends.

Mistake 2: Confusing Retiree Benefits With Active Coverage

Retiree health benefits are secondary to Medicare. If you're offered retiree coverage, you still need to enroll in Medicare Part B at 65 (or when you retire). Most retiree plans expect Medicare to be your primary insurance.

Mistake 3: Missing the 8-Month Window

When employer coverage ends, you have exactly 8 months to enroll in Part B without penalty. Miss this window and you'll have to wait for the General Enrollment Period (January-March) and face late penalties.

Mistake 4: Not Getting Proof of Coverage

Social Security may question whether you had creditable coverage. Always get written documentation from your employer confirming your coverage dates before leaving.

Your Action Steps

Here's what to do based on your situation:

If You're Approaching 65 and Still Working:

1. Check your employer size - Fewer than 20 employees? Enroll in Medicare at 65.
2. Review your current coverage - Compare benefits and costs with Medicare options.
3. Consider your HSA - If you have one, decide whether to stop contributions or delay all Medicare enrollment.
4. Confirm coverage is creditable - Get documentation that your employer plan qualifies.

If You're Planning to Retire Soon:

1. Get proof of employer coverage - Request a letter from HR before your last day.
2. Mark your calendar - You have 8 months from coverage end to enroll in Part B.
3. Research your options - Original Medicare + Medigap or Medicare Advantage?
4. Don't rely on COBRA - It's expensive and doesn't protect you from penalties.