Sooner or later, it happens at almost every small business: a valued employee (or you, the owner) is about to turn 65. The questions come fast. Do they have to sign up for Medicare? Can they stay on the company plan? Which one pays the bills?
The answer depends heavily on one number: how many employees your business has. Here’s a plain-English guide to the rules, the deadlines that matter, and the mistakes that can cost an employee money for years.
The 20-employee rule: who pays first
When someone has both Medicare and an employer group health plan, one of them pays claims first (the “primary” payer) and the other picks up some of what’s left (the “secondary” payer). Federal Medicare Secondary Payer rules decide the order based on the size of the employer:
| Your business | Who usually pays first for a 65+ employee who is still working | What that means |
|---|---|---|
| Fewer than 20 employees | Medicare | The group plan pays second. An employee who skips Medicare Part B could be left with large unpaid bills. |
| 20 or more employees | The group plan | Medicare pays second. Many employees can delay Part B without a penalty while they stay covered at work. |
The 20-employee count generally looks at whether the employer had 20 or more employees for each working day in at least 20 weeks of the current or prior calendar year, and it includes full-time and part-time employees. If your headcount is close to 20, ask your carrier or benefits advisor how they count it.
If you have fewer than 20 employees
This is where most of my small business clients sit, and it’s where the biggest mistakes happen. Because Medicare is the primary payer, the group plan is designed to pay after Medicare. If an employee turns 65 and doesn’t enroll in Medicare Part A and Part B, the group plan may pay only a small portion of a claim, or nothing at all, for services Medicare would have covered.
In practice, most employees of a small employer should plan to enroll in Part A and Part B when they first become eligible. Some keep the group plan as secondary coverage; others leave the group plan and pair Original Medicare with a Medicare Supplement (Medigap) policy. Which is better depends on the cost to the employee and how well each option fills Medicare’s gaps.
Always check your group policy’s wording too. Some small group carriers spell out exactly how they coordinate with Medicare for employees 65 and older.
If you have 20 or more employees
For larger small businesses, the group plan stays primary for employees who are actively working. An employee can usually keep the group plan and delay Part B without a late penalty, then sign up later using a Special Enrollment Period (explained below).
Employers of this size also have to follow two important rules: you must offer employees 65 and older the same group health benefits, on the same terms, as younger employees, and you can’t offer incentives to push an employee off the group plan and onto Medicare.
Key Medicare deadlines your employee should know
Initial Enrollment Period
The first chance to sign up for Medicare is a seven-month window: the three months before the month someone turns 65, their birthday month, and the three months after. Premium-free Part A is available to most people, so many still-working employees enroll in Part A even if they delay Part B (see the HSA note below first).
Special Enrollment Period after work ends
Someone who delayed Part B because they had group coverage based on current employment can usually enroll any time while that coverage lasts, or within eight months after the employment or the group coverage ends, whichever happens first. The employer typically completes a form confirming the dates of coverage (Social Security uses form CMS-L564 for this).
Two common traps: COBRA and retiree coverage don’t count as coverage based on current employment, and the eight-month clock starts when the job ends, not when COBRA runs out.
The Part B late enrollment penalty
Miss these windows, and the Part B premium can go up 10% for each full 12-month period someone could have had Part B but didn’t. In most cases that penalty lasts as long as they have Part B, and they may have to wait for the General Enrollment Period to sign up at all.
The Medigap Open Enrollment Period
Once someone is 65 or older and enrolled in Part B, they get a one-time, six-month Medigap Open Enrollment Period. During those six months, an insurance company can’t use their health history to deny a Medigap policy or charge more. After the window closes, insurers in most cases can ask health questions. That’s why the timing of Part B enrollment matters so much: it starts this clock.
Don’t forget the HSA
If your business offers an HSA-eligible plan, there’s an extra wrinkle. Once someone is enrolled in any part of Medicare, including premium-free Part A, they can no longer contribute to a Health Savings Account (they can still spend the money already in it).
Part A coverage can be backdated up to six months when someone signs up after 65 (but not earlier than the month they turned 65). To avoid a tax problem, employees who plan to enroll in Medicare later are often advised to stop HSA contributions about six months before they apply. Keep in mind that starting Social Security retirement benefits after 65 automatically enrolls a person in Part A.
Can my business help pay for Medicare coverage instead?
Sometimes, yes. Depending on your size and setup, a health reimbursement arrangement such as a QSEHRA or an ICHRA may be able to reimburse a Medicare-enrolled employee for premiums like Medicare Part B and a Medigap policy. The rules are more restrictive for employers with 20 or more employees, so this needs to be set up carefully. You can learn how these arrangements work in ICHRA vs. QSEHRA: Which Health Reimbursement Arrangement Fits Your Small Business?
A simple checklist for small business owners
- Know your number. Confirm whether your business counts as fewer than 20 or 20+ employees for Medicare purposes.
- Start the conversation early. Talk with the employee at least three months before their 65th birthday.
- Read your group policy. Find out how your carrier coordinates benefits with Medicare.
- Check the HSA. If they contribute to an HSA, plan when to stop.
- Document coverage. When an employee later enrolls in Part B, be ready to sign the employment and coverage form promptly.
- Compare options. Group plan, Original Medicare with Medigap, or a mix: have someone run the numbers for the employee.
Still deciding whether your business should offer a group plan at all? Start with How Many Employees Do You Need for Group Health Insurance in Florida? and Level-Funded vs. Traditional Group Health Insurance. Planning your own coverage as an owner? See Self-Employed Health Insurance in Florida, and if your renewal is coming up, use the Small Business Open Enrollment Checklist.
Frequently asked questions
Does an employee have to sign up for Medicare at 65 if they’re still working?
Not always. If the business has 20 or more employees and the group plan pays first, many employees can delay Part B without a penalty. If the business has fewer than 20 employees, Medicare usually pays first, so enrolling in Part A and Part B on time is generally important.
Can a 65-year-old stay on our small group plan?
Usually, yes. Turning 65 doesn’t by itself remove someone from an employer plan. What changes is which coverage pays first, and that depends on your company’s size.
Does COBRA count as employer coverage for delaying Part B?
No. COBRA is not coverage based on current employment, so it doesn’t protect someone from the Part B late penalty. The eight-month Special Enrollment Period starts when the job ends.
What about the business owner?
The same rules generally apply to an owner who is covered as an employee under the group plan. Owners of very small businesses should look at their own Medicare timing just as carefully as their employees’.
When should someone buy a Medigap policy?
The best time is usually during the six-month Medigap Open Enrollment Period that starts when they’re 65 or older and enrolled in Part B, because insurers can’t use health history to deny coverage or charge more during that window.
Have an employee turning 65? Let’s map it out.
I’m Chris Puccio, an independent health insurance agent based in Boca Raton, Florida, and licensed in all 50 states. I help small business owners and their employees understand how Medicare fits with the group plan, when to enroll, and how Medigap compares. There’s no cost for the consultation.
Book a free consultation or call (561) 525-6965.
This article is general information, not legal or tax advice. Medicare coordination rules, plan terms and eligibility vary by situation, carrier and state. Not connected with or endorsed by the U.S. government or the federal Medicare program.
