The 20-employee rule explained
Federal "Medicare Secondary Payer" rules dictate which insurance is primary when you have both Medicare and group employer coverage. For employers with 20 or more employees, the group plan is primary and Medicare is secondary. For employers with fewer than 20, Medicare is primary and the group plan is secondary.
"Secondary" in insurance language means the insurer pays only after the primary insurer has paid. If you have a small-employer plan but haven't enrolled in Medicare, the small-employer plan effectively pays nothing — they assume Medicare paid first, deduct what Medicare would have paid, and pay the remainder. With no Medicare, you're on the hook for the entire "Medicare would have paid" portion. We've seen this trigger $30,000-$70,000 surprise bills after a hospitalization.
Step 1 — confirm your employer size in writing
Don't guess. Ask HR or your benefits administrator in writing: "Does our company have 20 or more employees for Medicare Secondary Payer purposes?" Save the email or letter. The headcount that matters is total employees company-wide for the prior calendar year, not just your office.
Step 2 — confirm "creditable coverage" status
Even at large employers, you need to confirm your group plan is "creditable coverage" for Medicare deferral. Three pieces:
- For Part B deferral: the plan must be based on you (or your spouse) actively working — not COBRA or retiree coverage.
- For Part D deferral: the plan's prescription drug coverage must be at least as comprehensive as standard Medicare Part D. Your insurer is required to send you a "creditable coverage" letter each fall — keep it.
- For Part A: if you've worked 40+ quarters paying Medicare taxes, Part A is premium-free, and most people enroll at 65 even when deferring B. But there's an HSA consideration (see below).
The HSA exception — when not to enroll in Part A
Once you're enrolled in Medicare Part A — even premium-free Part A — you cannot contribute to a Health Savings Account. If you're working past 65 and contributing to your employer's HSA-eligible health plan, you should typically defer Part A as well as Part B until you stop HSA contributions.
Critical detail: when you eventually enroll in Part A, the enrollment is retroactive up to 6 months. That means HSA contributions from the 6 months before your Part A effective date become "excess contributions" subject to a 6% IRS excise tax. Stop HSA contributions at least 6 months before applying for Part A.
If you've already started receiving Social Security retirement benefits, you cannot defer Part A — Social Security automatically enrolls you. The only way to opt out is to disclaim Social Security entirely, which usually isn't worth it.
The COBRA trap
COBRA is not "current employer coverage" for Medicare deferral purposes. If you turn 65 while on COBRA, the 8-month Part B Special Enrollment Period that normally protects you when leaving employment doesn't apply. The clock for late-enrollment penalties keeps ticking.
People lose 65th birthdays to this all the time:
- Lose job at 64.5
- Take 18 months of COBRA
- Try to enroll in Medicare at age 66
- Discover they owe a 12-month Part B late penalty (10% × 1 year = 10% lifetime)
If you're on COBRA approaching 65, enroll in Part B during your IEP regardless of COBRA. You can keep COBRA as secondary, but Medicare must be primary.
Step 3 — when the time comes, the SEP
When you eventually retire or lose group coverage:
- Part B SEP: 8 months from the month after your employment ends or your group coverage ends, whichever comes first. Use form CMS-L564 — your employer fills out the section confirming your creditable coverage dates.
- Part D SEP: 2 months from the same trigger. Don't miss this one — it's narrower than Part B.
- Medigap window: in most states, your one-time 6-month Medigap Open Enrollment starts when your Part B becomes effective. This is your underwriting-free shot at the cheapest Plan G or N carrier in your state.
Form CMS-L564 — the employer creditable coverage letter
When you enroll in Part B after 65, Social Security may ask you to prove you had creditable employer coverage during the deferral period. Form CMS-L564 is the form. You fill out Section A (your information). Your employer fills out Section B (your group coverage dates). Both go to Social Security with your Part B application.
Get this form started before your retirement date. If you wait until after, it becomes a chase — your former HR department needs to fill it out and many employers slow-walk it. Some retirees have ended up paying late penalties because the form took 6 weeks and their SEP closed in the meantime.
Decision tree summary
- Get your employer size in writing. 20+ vs less than 20 changes everything.
- If less than 20: enroll in Medicare during your IEP. The group plan is secondary, and skipping Medicare creates massive coverage gaps.
- If 20+: get the creditable coverage letter. Decide on Part A based on HSA contributions. Defer Part B until you retire.
- HSA contributors: stop HSA contributions 6 months before any Medicare enrollment.
- Retirement coming up: get Form CMS-L564 started early. Enroll in Part B during the 8-month SEP. Use your Medigap MOE to lock in the cheapest Plan G.