How Medicare works with employer insurance comes down to one number: the size of the employer. If the employer has 20 or more employees, the employer plan pays your medical bills first and Medicare pays second. If the employer has fewer than 20 employees, Medicare pays first and the employer plan is secondary.1Office of the Law Revision Counsel. 42 U.S. Code 1395y – Exclusions From Coverage and Medicare as Secondary Payer That single rule drives almost every decision you have to make about enrollment timing, penalties, and whether to keep the employer plan at all.
Which Plan Pays First
Federal law bars group health plans at employers with 20 or more employees from treating Medicare-eligible workers differently from anyone else. If you’re 65 or older and actively employed at one of those employers, or covered through a working spouse’s plan there, the employer plan is primary. Medicare is secondary and picks up certain costs the employer plan didn’t cover.1Office of the Law Revision Counsel. 42 U.S. Code 1395y – Exclusions From Coverage and Medicare as Secondary Payer
At smaller employers the order flips. Because those plans expect Medicare to be doing the heavy lifting, skipping Medicare while working at a small employer can leave you with major coverage gaps: neither plan considers itself primary.2Centers for Medicare & Medicaid Services. Medicare Secondary Payer Manual Chapter 2 – MSP Provisions
Disability and End-Stage Renal Disease
If you qualify for Medicare through disability rather than age, the employer-size threshold is 100 employees, not 20. Employer plans at companies with 100 or more workers pay first; below that, Medicare pays first.3Medicare.gov. Who Pays First? End-stage renal disease follows its own schedule: for the first 30 months of Medicare eligibility, the employer plan pays first regardless of employer size, and Medicare takes over as primary after that.4Medicare.gov. End-Stage Renal Disease (ESRD)
If you think a claim was processed in the wrong order, the Benefits Coordination & Recovery Center handles those disputes.5Centers for Medicare & Medicaid Services. Coordination of Benefits
Can You Delay Part B While You’re Still Working?
Your Initial Enrollment Period for Medicare runs seven months: the three months before you turn 65, the month of your birthday, and the three months after.6Medicare.gov. When Does Medicare Coverage Start If you’re covered by a large-employer plan (20 or more employees) through your own job or a working spouse’s job, you can skip Part B during that window without penalty. When the employment or the coverage ends, you get an eight-month Special Enrollment Period to sign up for Part B.7Medicare.gov. Working Past 65
If you work for a small employer where Medicare is already primary, don’t delay. Enroll in Part B during your Initial Enrollment Period. Skipping it means you’re effectively uninsured for the share Medicare would have paid, and you’ll owe a permanent late-enrollment penalty on top.
To enroll during the Special Enrollment Period, submit Form CMS-40B along with proof of your prior group health plan coverage. You can send it by mail or fax, or bring it to a Social Security office.8Centers for Medicare & Medicaid Services. CMS 40B File early in your eight-month window. Processing delays are common, and any gap between the employer plan ending and Part B starting is money out of your pocket.
COBRA and Retiree Coverage Are Not the Same as Active Coverage
This is where most people get tripped up. COBRA and retiree health benefits may feel identical to the employer coverage you had while working, but Medicare treats them very differently.
COBRA
Once you elect COBRA, Medicare becomes your primary payer immediately, and COBRA only picks up a small share as secondary.3Medicare.gov. Who Pays First? Just as important, COBRA does not count as employer group health plan coverage for the Part B Special Enrollment Period. The eight-month clock starts when your active employment or employer group coverage ends, not when COBRA runs out.7Medicare.gov. Working Past 65 Waiting 18 months for COBRA to expire before signing up for Part B is one of the most expensive mistakes you can make in this whole system.
Retiree Plans
Retiree health coverage also pays second to Medicare. Many retiree plans require you to enroll in both Part A and Part B for full benefits. If you skip Part B, the retiree plan can refuse to pay for costs Part B would have covered, and you’re stuck with the full bill.3Medicare.gov. Who Pays First?
Health Savings Accounts Stop at Medicare
If you’ve been contributing to a Health Savings Account through a high-deductible employer plan, enrolling in any part of Medicare, including Part A, drops your HSA contribution limit to zero starting that month. Contributions past that point are excess contributions and face a 6% excise tax for each year they stay in the account.9Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Accounts
Watch the retroactive rule. If you apply for Part A after age 65, coverage backdates up to six months (but no earlier than the month you turned 65).10Centers for Medicare & Medicaid Services. Original Medicare (Part A and B) Eligibility and Enrollment That retroactive coverage invalidates any HSA contributions you made during those months. Filing for Social Security also triggers automatic Part A enrollment, so anyone planning to claim Social Security should stop HSA contributions at least six months before filing.
Money already in the HSA is still yours. You can spend it tax-free on qualified medical expenses after enrolling in Medicare; the restriction applies only to new contributions.
Prescription Drug Coverage
Every year, employers must tell Medicare-eligible workers whether the plan’s drug coverage is “creditable,” meaning it pays at least as much on average as a standard Medicare Part D plan. That notice has to go out before October 15, and at other trigger points like when someone first becomes Medicare-eligible.11Centers for Medicare & Medicaid Services. Creditable Coverage
Read that notice. If your drug coverage is creditable, you can delay Part D without penalty. If it isn’t creditable and you skip Part D anyway, you’ll owe 1% of the national base beneficiary premium ($38.99 in 2026) for every full month you went without creditable coverage. The penalty is permanent. A 14-month delay adds about $5.50 per month for as long as you have Part D.12Medicare.gov. Avoid Late Enrollment Penalties
Before dropping employer drug coverage for a standalone Part D plan, call your benefits administrator. Some employers cancel all retiree coverage, including medical, if you leave the drug plan.
Comparing the Costs
The standard Medicare Part B premium in 2026 is $202.90 per month, with a $283 annual deductible. After the deductible, you pay 20% of covered services and there’s no annual out-of-pocket maximum.13Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles Employer plans usually cap what you pay out of pocket each year, which is one of the main reasons workers keep employer coverage when they can.
Premiums alone are a bad way to compare. An employer plan with a $300 monthly premium but a $3,000 out-of-pocket maximum can beat Medicare’s $202.90 premium plus uncapped 20% coinsurance if you have a bad year medically. Dental and vision usually come with employer plans and don’t come with Original Medicare.
IRMAA for Higher Earners
If your modified adjusted gross income two years ago was above $109,000 as an individual or $218,000 filing jointly, you’ll owe an Income-Related Monthly Adjustment Amount on top of the standard Part B and Part D premiums. Surcharges climb in five tiers up to $500,000 individual or $750,000 joint.13Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles Part D adds a separate surcharge on top of your plan premium, ranging from $14.50 to $91.00 per month at the same income brackets.14Medicare.gov. 2026 Medicare Costs
If your income drops because of retirement, divorce, the death of a spouse, or a lost pension, you can ask the Social Security Administration to base the surcharge on your newer income by filing Form SSA-44 with documentation.15Social Security Administration. Medicare Income-Related Monthly Adjustment Amount – Form SSA-44
The Cost of Getting the Timing Wrong
Delaying Part B without qualifying employer coverage adds 10% to your premium for every full 12-month period you could have signed up. That surcharge stays on your premium for as long as you have Part B, which for most people means life. Three full years of delay means a 30% premium bump forever.12Medicare.gov. Avoid Late Enrollment Penalties
The Special Enrollment Period only shields you from that penalty when your delay was based on a group health plan tied to current employment at an employer with 20 or more employees (or a working spouse’s job at one).16Social Security Administration. How to Apply for Medicare Part B During Your Special Enrollment Period COBRA, retiree coverage, individual marketplace plans, and VA coverage do not protect you. If any of those is your only coverage at 65, enroll in Part B during your Initial Enrollment Period.
Your Rights If Your Employer Pushes Back
The Medicare Secondary Payer statute prohibits employers with 20 or more employees from pressuring Medicare-eligible workers to drop the group plan or offering them a worse plan because they qualify for Medicare.1Office of the Law Revision Counsel. 42 U.S. Code 1395y – Exclusions From Coverage and Medicare as Secondary Payer If HR suggests you “just go on Medicare,” that’s worth reporting to CMS.
The Employee Retirement Income Security Act gives you the right to request detailed information about how your employer plan coordinates with Medicare, guarantees an internal appeals process for denied claims, and lets you sue if the plan fails to pay promised benefits.17U.S. Department of Labor. Employee Retirement Income Security Act If a claim gets denied that should have been paid as secondary to Medicare, start with the plan’s internal appeal before going further.