Medicare doesn’t always pay your medical bills first. If you have other coverage—like employer insurance, VA benefits, or COBRA—there are specific rules that decide who pays first and who pays second. Understanding how Medicare coordination of benefits works can help you avoid denied claims, unexpected bills, and costly coverage gaps.
For many people, this isn’t a simple 101 issue. It directly affects how you plan retirement, whether you delay Medicare Part B, and how you structure your health benefits to minimize out-of-pocket costs.
What Is Medicare Coordination of Benefits?
Medicare coordination of benefits refers to the rules that determine which insurance pays first when you’re covered by more than one health plan. The insurance that pays first is called the “primary payer.” The other plan is the “secondary payer,” meaning it may cover some or all of the remaining costs after the primary plan pays.
The goal is simple: prevent duplicate payments and ensure that claims are processed correctly. But in practice, the rules vary depending on your age, employment status, employer size, and the type of additional coverage you carry.
Medicare can either be primary or secondary. That distinction matters because it affects deductibles, copays, and whether delaying enrollment in certain parts of Medicare could trigger late penalties.
Medicare and Employer Insurance: Who Pays First?
One of the most common coordination scenarios involves employer-sponsored coverage. The determining factor isn’t just your age—it’s also the size of the employer providing the insurance.
If you are 65 or older and still working, and your employer has 20 or more employees, your employer’s group health plan generally pays first. Medicare becomes secondary. In this situation, you may be able to delay enrolling in Medicare Part B without facing a late enrollment penalty, as long as you’re covered by active employer coverage.
However, if your employer has fewer than 20 employees, Medicare typically pays first once you’re eligible. The employer plan becomes secondary. This is where many people get tripped up. Some assume their small employer plan will remain primary, decline Part B, and later discover they have major coverage gaps.
The rules differ slightly if you’re under 65 and qualify for Medicare due to disability. In that case, the threshold shifts to employers with 100 or more employees for the group plan to pay first.
Here’s a simplified breakdown for age-based Medicare eligibility:
| Situation | Employer Size | Primary Payer | Secondary Payer |
|---|---|---|---|
| Age 65+, actively working | 20+ employees | Employer plan | Medicare |
| Age 65+, actively working | Fewer than 20 employees | Medicare | Employer plan |
| Under 65 with disability | 100+ employees | Employer plan | Medicare |
| Under 65 with disability | Fewer than 100 employees | Medicare | Employer plan |
This distinction can influence major financial decisions. For example, if Medicare is primary and you decline Part B, your employer plan may refuse to pay what Medicare would have covered. That leaves you responsible for those costs.
If you’re still working past 65, reviewing your employer size and confirming payer status with your benefits administrator is not optional—it’s essential.
Medicare and Retiree Coverage
Retiree health coverage works differently from active employer coverage. In most cases, Medicare becomes the primary payer once you’re eligible, and retiree coverage becomes secondary.
That means you generally need both Medicare Part A and Part B for the retiree plan to function properly. Some retiree plans even require proof of Medicare enrollment.
Retiree coverage often helps cover Medicare deductibles, coinsurance, or services Medicare doesn’t fully pay for. But it is not a substitute for Medicare. Declining Medicare because you have retiree benefits can lead to denied claims and permanent late enrollment penalties.
If you’re approaching retirement and have access to retiree health benefits, it’s wise to review how that plan coordinates with Medicare before making enrollment decisions.
Medicare and COBRA: A Common Mistake
COBRA allows you to temporarily continue employer coverage after leaving a job. Many people assume COBRA works like active employer coverage. It does not.
In most cases, once you’re eligible for Medicare, Medicare becomes the primary payer and COBRA becomes secondary. If you don’t enroll in Medicare Part B when first eligible and rely solely on COBRA, you may face significant coverage gaps.
COBRA coverage does not protect you from Medicare late enrollment penalties. The Special Enrollment Period that allows you to sign up for Part B without penalty applies only to active employment coverage, not COBRA.
This misunderstanding can be expensive. Someone who delays Part B while on COBRA could face:
• A lifetime Part B late enrollment penalty
• A waiting period until the next General Enrollment Period
• Months without adequate coverage
COBRA can still be useful as secondary coverage, but it should rarely replace Medicare once you’re eligible.
Medicare and VA Benefits
Veterans often have access to health care through the Department of Veterans Affairs (VA). VA coverage operates separately from Medicare.
VA benefits and Medicare do not coordinate benefits in the traditional sense. The VA pays for care at VA facilities, and Medicare pays for Medicare-covered services outside the VA system. They do not typically share payment for the same services.
This creates an important strategic decision. If you rely exclusively on VA health care, you may feel you don’t need Medicare Part B. However, if you later decide to seek care outside the VA system and did not enroll in Part B when first eligible, you may face late penalties and limited enrollment windows.
Many veterans enroll in Medicare Part A at 65 because it’s premium-free for most people. Whether to enroll in Part B depends on how much flexibility you want in choosing providers and accessing non-VA facilities.
If your long-term plan includes options outside the VA system, enrolling in Medicare on time preserves that flexibility.
Medicare and Medicaid: Dual Eligibility
For individuals who qualify for both Medicare and Medicaid, Medicare typically pays first. Medicaid then covers certain costs that Medicare does not, including some premiums, deductibles, and long-term care services.
This dual eligibility structure can significantly reduce out-of-pocket costs. However, Medicaid eligibility is income-based and varies by state. Coordination rules here are generally straightforward—Medicare first, Medicaid second—but the real complexity lies in eligibility and benefits administration.
If you qualify for both, you may also be eligible for special programs like Medicare Savings Programs or Extra Help with prescription drug costs.
How Claims Actually Get Processed
When both Medicare and another insurer are involved, providers usually submit claims to the primary payer first. Once that claim is processed, the remaining balance is automatically or manually forwarded to the secondary payer.
To avoid claim delays:
Make sure both insurers have accurate information about your other coverage.
Update your employment status when it changes.
Respond promptly to any Medicare Coordination of Benefits Contractor inquiries.
Even a small reporting error can cause payment delays or denials. If Medicare incorrectly believes it is secondary when it should be primary, claims can stall for weeks.
Proactively verifying your status can prevent these administrative headaches.
How Coordination Affects Your Costs
Understanding who pays first isn’t just administrative—it directly impacts your financial exposure.
If Medicare is secondary, your employer plan may cover more upfront costs, and Medicare may pay little or nothing depending on the remaining balance. If Medicare is primary, it pays according to its standard coverage rules, and your secondary plan may help with coinsurance or deductibles.
The order can affect:
Deductible responsibility
Copay amounts
Out-of-pocket maximums
Prescription drug coverage decisions
This becomes especially important when planning retirement timing. Some people delay retirement to maintain primary employer coverage. Others enroll in Medicare immediately to reduce premium costs.
The best choice depends on your specific coverage structure, not just your age.
Strategic Considerations Before You Decide
If you’re approaching Medicare eligibility and still have other coverage, consider these practical questions:
Is your employer plan considered primary or secondary under Medicare rules?
Will delaying Part B expose you to penalties?
Does your current plan offer better provider networks or lower out-of-pocket limits than Medicare options?
Are you planning to relocate, retire, or change employment within the next year?
These aren’t surface-level questions. They influence long-term cost control and flexibility.
For example, someone working for a large employer might safely delay Part B and continue contributing to a Health Savings Account. Someone working for a small employer likely cannot. A veteran relying entirely on VA services may be comfortable delaying Part B, while another may want broader access to civilian providers.
The coordination rules themselves are fixed, but how you respond to them should be strategic.
Why Getting This Right Matters Long-Term
Mistakes with Medicare coordination of benefits often show up years later in the form of penalties or denied claims. The Part B late enrollment penalty increases your premium by 10 percent for each 12-month period you were eligible but did not enroll. That penalty lasts for life.
Similarly, misunderstanding COBRA or retiree coverage can leave you temporarily uninsured at exactly the wrong time.
Health care planning at 65 and beyond is less about memorizing rules and more about aligning coverage with your broader retirement strategy. Employer size, employment status, and future flexibility all matter more than most people realize.
The Bottom Line on Medicare Coordination of Benefits
Medicare coordination of benefits determines who pays first, but your decisions determine how smoothly your coverage works. Employer insurance, VA benefits, COBRA, retiree plans, and Medicaid all interact with Medicare differently. Assuming they function the same way can be costly.
The smartest move is to treat Medicare enrollment as a strategic decision rather than an automatic one. Confirm who pays first. Evaluate how that affects penalties and out-of-pocket exposure. And align your enrollment timeline with your employment and retirement plans.
When you understand who pays first, you gain more control over what you ultimately pay.
