How Does Medicare Work If You Have Retiree Insurance?

Leaving the workforce doesn’t necessarily mean leaving employer-provided health insurance behind. Some companies continue to offer retirees health coverage, even after they stop working and enroll in Medicare. When that happens, Medicare generally becomes the primary payer. Different rules may apply when it comes to prescription drug coverage, however. And age at retirement is another key consideration.

If you need help creating a retirement plan that takes into account your healthcare needs and costs, consider reaching out to a financial advisor. 

Retiree insurance is health coverage that some employers offer employees after they retire. This insurance is designed to continue providing healthcare benefits to retirees, often mirroring the coverage they received while they were working.

COBRA continuing coverage is a specific type of health insurance that can allow people to keep their company health plan in effect after they leave their employer, either to take another job or to retire. Companies with more than 20 employees are legally required to provide COBRA coverage, although smaller firms may have to in some states. 

The special feature of COBRA coverage is that the former employee must pay the premiums, and this can get expensive. However, for people retiring before Medicare eligibility, COBRA can be a viable option.

Most employers do not offer retiree insurance beyond COBRA. Those that do are typically large companies and government employers, as well as some unions, as part of a retirement benefits package. The employer may cover all or just part of the premium. When available, retiree insurance plans can include a combination of:

• Medical
• Prescription drug
• Dental
• Vision

Coverage specifics can vary widely between plans. Generally, speaking, retiree insurance can help fill the gaps left by Medicare, which may not cover all healthcare expenses, such as certain prescriptions or specialized medical services. 

For retirees with both Medicare and retiree health insurance, Medicare usually serves as the primary payer, covering your healthcare costs first. Your retiree insurance then acts as secondary coverage, helping to pay for costs that Medicare doesn’t cover, such as copayments, coinsurance and deductibles. Together, Medicare and retiree insurance can reduce overall out-of-pocket expenses and provide more comprehensive coverage.

While that’s generally the situation, specifics matter when it comes to how your retiree plan interacts with Medicare. Some retiree plans might offer benefits that overlap with Medicare, while others are specifically designed to complement Medicare’s coverage. Also, if your retiree plan includes prescription drug coverage, you could be unnecessarily enrolled in a Medicare Part D drug coverage plan in some circumstances.

Generally, retiree insurance that has prescription drug coverage may act as your primary coverage, with Medicare Part D playing a secondary role. Details depend on specifics of your retiree plan and whether the prescription drug coverage is deemed creditable, meaning it is at least as good as or better than Medicare’s standard prescription drug coverage.

If your retiree plan’s drug coverage is creditable, you may not need to enroll in a Medicare Part D plan. In fact, enrolling in Part D when you already have creditable coverage could result in unnecessary costs, such as monthly premiums for the Medicare plan. 

If your retiree coverage is not creditable, you might need to enroll in a Part D plan to avoid late enrollment penalties and ensure you have adequate drug coverage. Determining the best course requires comparing the retiree plan’s drug benefits with those offered by Medicare Part D.

If you have retiree insurance that provides comprehensive coverage, you may not need a Medigap policy. Some retiree plans may not work well with Medigap policies or might even restrict your ability to purchase one. This is because retiree insurance is often designed to fill the same gaps in Medicare coverage that Medigap policies address, such as copayments, coinsurance and deductibles.

However, in some cases, retirees might find that their retiree insurance does not provide enough coverage, prompting them to consider a supplemental policy. In this case, it’s important to carefully review your retiree insurance plan to determine whether a Medigap policy is necessary or beneficial. 

If you’re considering combining supplemental insurance with retiree coverage, consulting with a knowledgeable insurance advisor can help you make the best decision based on your unique healthcare needs and financial situation. 

Knowing how Medicare works with retiree insurance can help you optimize your healthcare benefits and reduce your expenses in retirement. This may include evaluating how your retiree plan covers prescription drugs, exploring supplemental insurance options, and understanding how benefits are coordinated between Medicare and your retiree plan.

• A financial advisor can work with you to analyze investments for your retirement and manage them. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• A health savings account (HSA) can offer you another way to cover medical costs. This guide explains how it works and who should get one.

Photo credit: ©iStock.com/Wavebreakmedia, ©iStock.com/vgajic, ©iStock.com/kali9