Do you have employees who are 65 or older? If so and you provide group health insurance, what pays first? Medicare or your company plan?

For employees who are Medicare-eligible or already covered by Medicare, you want to understand the rules about which insurance plan pays first (the primary payer) and which pays second (the secondary payer).

If you have fewer than 20 eligible employees and you offer group health insurance, Medicare is the primary payer for covered employees and your group plan is the secondary payer.

If you have 20 or more eligible employees, you must offer Medicare-eligible employees — and their spouses, if applicable — the same coverage you offer other eligible employees. Your group health insurance plan is the primary payer and Medicare is the secondary payer. For those eligible for benefits under their spouses’ group health insurance, that plan is the primary payer and Medicare is the secondary payer.

What does it mean to be the primary payer versus the secondary payer? The primary payer pays claims up to the plan coverage limits. The secondary payer only pays if there are allowable costs the primary payer didn’t cover. It’s possible this payer might not pay all remaining expenses or costs. If the group health plan is the secondary payer, the eligible employee could need to be enrolled in Medicare Part B for the secondary payer to cover any costs.

What happens when your Medicare-eligible employees choose your employer health plan instead of enrolling in Medicare:

If you have fewer than 20 employees: Make sure your older employees understand they must sign up for Medicare when they become eligible or face a late enrollment penalty for Medicare Part B if they sign up later.

If have 20 or more employees: Employees can delay signing up for Medicare without any late enrollment penalties.

If your company contributes to a health savings account (HSA) for employees or employees make their own contributions, these payments must be stopped when an employee starts Medicare coverage. There could be a tax penalty if contributions to HSAs are made after an employee begins coverage under Medicare Part A. Money in an existing HSA may be used to pay Medicare or other deductibles, premiums, coinsurance and  co-payments.

Employers sometimes offer Medicare-eligible employees a monthly amount, often equal to the cost of Medicare Part B and a Medicare supplement or advantage plan, as an incentive for the employee to drop out of the company plan. Check with your tax and benefits advisors before going this route to make sure you don’t violate any laws. Assuming the monthly payment is allowable, this approach could offer a win-win-win for the employer, the affected employees and the other employees who remain on your group insurance plan. Older employees cause the overall premiums for group plans to rise, so incentivizing them to use Medicare can save the employer significant money — especially in small group plans — while giving the older employee a means to reduce the costs of Medicare Part B and supplemental plans. Additionally, the remaining employees reap the benefits of lower overall premiums and, possibly, lower annual premium increases.

As always, this column shouldn’t be construed as tax or legal advice. Consult professional advisors when making insurance, tax or other decisions. There could be additional coverage, restrictions or other considerations under Colorado laws, so consult your benefits provider or administrator.