As we move further into 2026, the landscape of the American workforce continues to shift. More than ever, we are seeing valued team members choose to work well past the traditional retirement age of 65. While having that experience and institutional knowledge on your team is a massive win for your business, it does introduce a specific layer of complexity regarding your employee benefits strategy.
The biggest question we get here at Total Benefit Solutions Inc is often some variation of: "My top salesperson just turned 65. Do they have to go on Medicare, and who pays their medical bills first?"
The answer lies within the Medicare Secondary Payer (MSP) rules. These regulations are designed to protect the Medicare trust fund by ensuring that, in certain circumstances, private insurance pays before the government does. Navigating these rules isn't just about being a good employer; it’s about staying compliant with federal law and avoiding significant penalties.
In this guide, we’ll break down exactly what you need to know to manage a multigenerational workforce without the headache.
What Exactly is "Medicare Secondary Payer"?
At its core, Medicare Secondary Payer is a set of coordination-of-benefits rules. When an employee (or their spouse) has both a Group Health Plan (GHP) and Medicare, one of those plans must be the "primary payer."
The primary payer pays the claim first, up to the limits of its coverage. The secondary payer then picks up the remaining costs, provided they are covered services under that secondary plan. If the rules say your company's plan is primary, but you process the claim through Medicare first, you could be looking at a messy "recovery" process where the government demands their money back: often with interest and penalties.
The Magic Number: The 20-Employee Threshold
For most employers, the entire MSP world hinges on one number: 20.
The federal government uses your employee count to determine whether your group health insurance for employers is primary or secondary to Medicare. Here is how it breaks down in simple terms:
- Large Employers (20 or more employees): Your group health plan is the primary payer. Medicare is secondary.
- Small Employers (Fewer than 20 employees): Medicare is the primary payer. Your group health plan is secondary.
However, counting to 20 isn't as simple as checking today's payroll. The IRS and CMS (Centers for Medicare & Medicaid Services) look at the "20-week rule."
To be considered a "large employer" for MSP purposes, you must have employed 20 or more employees (full-time or part-time) for each working day in at least 20 calendar weeks in either the current or the preceding calendar year. This means if you had 25 employees last year but downsized to 15 this year, you are still considered a "large employer" for MSP purposes for the remainder of this year.
Rules for Large Employers (20+ Employees)
If you have 20 or more employees, the law is very clear: you must offer your employees aged 65 and older the same benefits, under the same conditions, as you offer to your younger employees.
1. No Incentives to Drop Coverage
One of the most common pitfalls we see is an employer offering a "buy-out" or a bonus to an employee if they agree to leave the company plan and sign up for Medicare. Do not do this.
Under the Medicare Secondary Payer rules, it is illegal for an employer to offer any financial or other incentive for an individual entitled to Medicare to not enroll in a group health plan that would otherwise be primary. This includes offering to pay for their Medicare Part B or Part D premiums or giving them a "wellness" bonus that is only available to those who drop the company plan.
2. Equal Benefits
You cannot offer a "Medicare carve-out" plan where your insurance only covers what Medicare doesn't. Your plan must treat the 65+ employee exactly like a 30-year-old employee. If they choose to keep the company coverage, that insurance must pay first for any covered medical expenses.
3. The Employee's Choice
The employee does have a choice. They can choose to drop the company coverage and take Medicare as their primary insurance. However, if they do this, you cannot provide them with a supplemental plan or pay their premiums. They are essentially "on their own" for health insurance, though they remain your employee.
Rules for Small Employers (Fewer than 20 Employees)
For businesses with fewer than 20 employees, Medicare is generally the primary payer. This is actually a significant benefit for small business owners because it shifts the bulk of the risk and cost for older employees to the Medicare system, which can help keep your group premiums more stable.
The Small Employer Exception (MSP-SEE)
In some cases, small employers who are part of a "multi-employer" or "multiple employer" plan (like certain trade association plans) might find themselves categorized as primary payers even if they have fewer than 20 staff members.
However, there is an "exception" process. Small employers can apply for a Small Employer Exception (SEE) through CMS. This allows the small employer's plan to remain secondary even if they are bundled with larger companies in a joint health plan. At Total Benefit Solutions Inc, we frequently help our smaller clients navigate this paperwork to ensure they aren't paying primary claims unnecessarily.
2026 Updates: What’s New This Year?
As of April 2026, we are seeing the full impact of the Inflation Reduction Act’s changes to Medicare Part D. While this doesn't change the 20-employee threshold for medical claims, it has a massive impact on "Creditable Coverage" notices.
Every year, you are required to notify your Medicare-eligible employees whether your group plan’s prescription drug coverage is "creditable": meaning it is at least as good as Medicare’s standard Part D plan.
Because Medicare Part D significantly improved in 2025 and 2026 (including a $2,000 out-of-pocket cap for seniors), many private employer plans that used to be considered "creditable" may no longer meet the mark. If your plan is "non-creditable," your employees need to know so they can enroll in Part D during their initial enrollment period to avoid lifelong late-enrollment penalties.
Compliance Checklist for Employers
To stay on the right side of the law, every employer with staff reaching age 65 should follow these steps:
- Perform an Annual Headcount: Don't guess. Use the 20-week rule to determine if you are a "large" or "small" employer for the current year.
- Review Your Plan Documents: Ensure there is no language that discriminates against employees based on age or Medicare eligibility.
- Distribute Creditable Coverage Notices: This must be done every year before October 15th (the start of the Medicare Open Enrollment Period).
- Train Your HR Team: Ensure that no one is accidentally offering "tips" or "bonuses" to seniors to get them off the company plan.
- Audit Your Billing: If you are a small employer, ensure your insurance carrier knows Medicare should be primary. If you are a large employer, ensure you aren't "auto-paying" as secondary.
How Total Benefit Solutions Inc Acts as Your Advocate
Medicare employer coverage is a minefield of "ifs," "ands," and "buts." You shouldn't have to be a legal scholar to offer a great benefits package.
At Total Benefit Solutions Inc, we view our role as more than just brokers. We are your advocates. When you have an employee turning 65, we sit down with you: and often the employee: to explain the rules in plain English.
We help you:
- Verify your MSP status so you know exactly who is primary.
- Compare costs for the employee between the group plan and Medicare.
- Handle the "Creditable Coverage" analysis so you aren't hit with compliance fines.
- Coordinate with carriers to ensure claims are being paid in the correct order.
Whether you are a small shop with five employees or a growing firm with 50, the rules apply to you. Let us take the complexity off your plate so you can focus on running your business.
Need Help Navigating MSP Rules?
Don't wait for a CMS audit to find out if you're in compliance. If you have questions about how Medicare interacts with your current group health insurance, or if you're unsure how many employees you "officially" have according to the 20-week rule, give us a call.
Contact Total Benefit Solutions Inc today.
Phone: (215) 355-2121
Website: https://totalbenefits.net/contact
You can also learn more about our services at www.totalbenefits.net.
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