If you're an employer with Medicare-eligible employees on your group health plan : or you're an employee trying to figure out whether to drop your employer coverage once you hit 65 : you need to understand Medicare Secondary Payer (MSP) rules.
These rules determine which insurance pays first when someone has both Medicare and employer-sponsored coverage. Get it wrong, and you could face claim denials, surprise bills, or even compliance penalties.
Let's break it down in plain English.
What Are Medicare Secondary Payer Rules?
Medicare Secondary Payer rules determine the order in which insurance plans pay when someone has both Medicare and other coverage (like group health insurance from an employer).
Here's the simple version: When Medicare is "secondary," it means your group health plan pays first, and Medicare picks up eligible remaining costs second. When Medicare is "primary," Medicare pays first, and your group plan (if you have one) pays second.
Congress created these rules back in 1980 to protect the Medicare Trust Fund and shift costs to private insurance when appropriate. The idea: if someone has access to employer coverage, that plan should be the first line of defense : not Medicare.
The 20-Employee Rule (Working Aged 65+)
This is the big one that trips up most employers.
If you're age 65 or older and covered by a group health plan through your own or your spouse's current employment, and the employer has 20 or more employees, the group health plan is primary and Medicare is secondary.
That "20 or more employees" threshold is critical. It applies to each working day in at least 20 calendar weeks during the current or preceding calendar year. Part-time employees count toward that total.
What This Means in Practice
Let's say you turn 65, enroll in Medicare Part A and B, and keep working at a company with 50 employees. You also stay on the company's group health insurance.
When you go to the doctor, your employer's group plan pays first. Medicare only pays after the group plan processes the claim, and only if there are remaining eligible charges.
You're not "wasting" your Medicare. You're creating a strong two-layer safety net. The group plan covers according to its terms, and Medicare may cover some out-of-pocket costs that the group plan doesn't fully pay.
When the Employer Is Smaller
If the employer has fewer than 20 employees, the rules flip. Medicare becomes primary, and the group health plan becomes secondary.
In this case, Medicare processes claims first. If the employer offers a group plan and the employee wants to stay on it, that plan would cover as secondary insurance : potentially filling in deductibles, copays, or services Medicare doesn't fully cover.
The 100-Employee Rule (Disabled Individuals Under 65)
If you're under 65, entitled to Medicare due to a disability, and covered by a group health plan through your own or a family member's current employment, the employer size threshold is higher: 100 or more employees.
With 100+ employees: The group health plan is primary; Medicare is secondary.
With fewer than 100 employees: Medicare is primary; the group plan (if offered) is secondary.
This is particularly relevant for employees receiving Social Security Disability Insurance (SSDI). After 24 months of SSDI, you qualify for Medicare : even if you're in your 30s, 40s, or 50s. If you're still working (or covered under a family member's plan), these rules determine coordination.
ESRD (End-Stage Renal Disease): A Special 30-Month Rule
If you have End-Stage Renal Disease (ESRD) and group health coverage, there's a unique 30-month coordination period.
For the first 30 months after you become eligible for Medicare due to ESRD, the group health plan pays primary and Medicare pays secondary : regardless of employer size.
After 30 months, Medicare becomes the primary payer, and the group plan (if still in place) becomes secondary.
This rule exists to give employer plans time to manage dialysis and transplant costs before shifting primary responsibility to Medicare.
What If You Have Medicare and Employer Coverage : Do You Need Both?
Short answer: It depends on the employer size and your situation.
Scenario 1: Large Employer (20+ employees), Age 65+
You can delay Medicare Part B enrollment without penalty if you have creditable employer coverage. Many people do this to avoid paying the Part B premium ($174.70/month in 2024) while fully covered by their employer plan.
But: Some employers require employees to enroll in Medicare once eligible, making Medicare primary and the group plan secondary (even at large employers). This is more common with retiree plans than active employee plans, but it's worth checking your specific plan rules.
Scenario 2: Small Employer (Fewer Than 20 employees), Age 65+
Medicare is primary. You could keep the employer plan as secondary, but often it doesn't make financial sense : especially if the employer plan has high premiums.
In this case, many people drop the employer plan and add a Medicare Supplement (Medigap) or Medicare Advantage plan to fill the gaps.
Scenario 3: You're Retired
Once you retire and lose active employee coverage, you must enroll in Medicare Part B (if you haven't already) to avoid late enrollment penalties.
You typically have an 8-month Special Enrollment Period after your employer coverage ends to sign up for Part B without penalty.
What Employers Need to Know About Medicare Secondary Payer Rules
If you're managing group health insurance for employers, MSP compliance is non-negotiable.
Here's what you need to do:
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Track employer size accurately. The 20-employee threshold (or 100 for disability) isn't based on full-time equivalents : it's total employees on each working day in 20+ weeks.
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Don't encourage Medicare-eligible employees to drop employer coverage unless the plan is truly secondary. If your plan is primary (20+ employees), employees may want both.
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Understand coordination of benefits. Your plan administrator and TPA need to know who's Medicare-eligible so claims process in the right order.
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Communicate clearly during open enrollment. Employees turning 65 need to understand whether they should enroll in Medicare Part B, delay it, or coordinate both.
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Work with a knowledgeable broker. MSP rules intersect with COBRA, retiree coverage, ACA employer mandates, and ERISA. It's complicated. Don't go it alone.
Real-World Example: Sarah Turns 65
Sarah is 65, still working full-time at a company with 75 employees, and enrolled in the company's group health plan. She signs up for Medicare Part A (it's free) but wonders whether she needs Part B.
Because her employer has 20+ employees, her group health plan is primary. She can delay Part B enrollment without penalty, as long as she has creditable employer coverage.
She decides to enroll in Part B anyway : because her employer's plan has a high deductible, and having Medicare as secondary gives her better coverage for doctor visits and prescriptions. She pays the Part B premium ($174.70/month), but her out-of-pocket costs drop significantly.
When she retires in three years, she'll already have Medicare Part A and B in place. No penalties, no gaps, no stress.
Real-World Example: Tom's Small Business
Tom owns a small business with 12 employees. One of his longtime employees, Linda, just turned 65.
Because the company has fewer than 20 employees, Medicare is primary for Linda. Tom's group health plan would be secondary if Linda stays on it.
Linda talks to her broker and realizes it makes more sense to drop the employer plan and enroll in a Medicare Supplement plan instead. She'll have better coverage, lower premiums, and Tom's business saves money by having one fewer person on the group plan.
Everybody wins : but only because they understood the MSP rules.
Why This Matters for Employers Offering Group Health Insurance
If you're shopping for group health insurance for employers or reviewing your current plan, MSP rules affect:
- Premium costs (fewer Medicare-eligible employees on the plan = lower group rates)
- Plan design (how your plan coordinates with Medicare)
- Compliance risk (incorrect coordination can trigger audits and penalties)
- Employee satisfaction (clear communication prevents confusion and surprise bills)
At Total Benefit Solutions, we help employers navigate these rules every day. We don't just hand you a quote and walk away. We dig into the details : who's Medicare-eligible, what your plan's coordination of benefits language says, and how to communicate changes during open enrollment.
Bottom Line: Get the Order Right
Medicare secondary payer rules aren't optional. They're federal law, and they directly impact how claims are paid when someone has both Medicare and employer coverage.
The key takeaways:
- 20+ employees (age 65+): Group plan is primary; Medicare is secondary
- Fewer than 20 employees (age 65+): Medicare is primary; group plan is secondary
- 100+ employees (disabled under 65): Group plan is primary; Medicare is secondary
- Fewer than 100 employees (disabled under 65): Medicare is primary; group plan is secondary
- ESRD: Group plan is primary for the first 30 months, then Medicare becomes primary
If you're an employer trying to figure out how Medicare employer coverage fits into your benefits strategy : or an employee trying to avoid penalties and surprise bills : we're here to help.
Let's talk. Visit us at totalbenefits.net or call (your phone number here) to schedule a benefits review. We'll make sure your plan is compliant, cost-effective, and actually makes sense for your team.
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