Employer Pressure to Decline Group Coverage in Favor of Medicare: Why It’s Prohibited (Even for Groups <20 Employee)

Even when an employer has fewer than 20 employees, making Medicare primary under the MSP rules, there are still strict federal protections preventing an employer from influencing an employee’s decision to enroll in Medicare instead of the employer’s group health plan. Below is an explanation of the rules and the risks.

Federal Law Strictly Prohibits Employers From Steering Employees Toward Medicare

Under the MSP anti-incentive rules, employers may not:

• Pressure an employee to drop group health coverage
• Offer incentives (cash, premium reimbursement, raises, bonuses) to get the employee to take Medicare instead
• Create enrollment materials, scripts, or conversations that suggest Medicare is “better,” “cheaper,” or “preferred”
• Design their plan in a way that targets or disadvantages Medicare-eligible employees

This prohibition applies to all employers, regardless of size, even if Medicare is primary for that employer. The difference in group size changes who pays first but does not change the anti-discrimination rules that protect Medicare-eligible workers.

For Small Employers (<20 Employees), Medicare Is Primary But That Does Not Remove the Anit-Steering Rules

When an employer has fewer than 20 employees, Medicare becomes the primary payer if an employee enrolls in Medicare. But the employer still cannot influence that decision.

The employee must be allowed to:

• Remain on the group health plan, and
• Make their own choice about whether to enroll in Medicare

The employer’s obligation is to offer coverage on the same terms as to younger employees in similar positions.

What Employers Cannot Do

Employers may not:

• Suggest the employee would be better off taking Medicare
• Tell the employee that coverage will be more expensive or less comprehensive if they stay on the group plan
• Pay or reimburse Medicare premiums (Part B, Part D or Medigap)
• Give any financial advantage for choosing Medicare
• Create any special opt-out programs for Medicare-eligible employees
• Treat Medicare-eligible employees differently in eligibility, premiums, contributions or benefits

All of these are considered prohibited incentives.

The Internal Revenue Service, Centers for Medicare & Medicaid Services, and Department of Labor have all enforced penalties for these behaviors, including $5,000 per violation in some cases, plus civil monetary penalties, excise taxes, and required corrective action.

Why the Rules Exist: Equal Treatment and No Discrimination

The government wants to prevent situations where employers attempt to “off-load” older or higher-risk employees onto Medicare to lower group plan costs.

Therefore:

• Employers must offer older employees the same access to group health coverage
• Employers must not differentiate based on Medicare eligibility or age

The decision to enroll in Medicare must be 100% voluntary and without employer influence.

What Employers May Do (The Safe Zone)

These actions are allowed:

• Provide the standard Medicare Part D Creditability Notice
• Provide general, neutral educational information from CMS (e.g., “Medicare & You” booklet)
• Respond factually to an employee’s Medicare questions when the employee initiates the conversation
• Continue offering the same group plan to all eligible employees
• Allow an employee to make their own independent decision

If the employee independently chooses Medicare, the employer may process the enrollment or disenrollment as usual — without providing any incentives.

Medicare-Eligible Employee (Group >20): What’s the Compliant Approach?

Because the employer has 20+ employees, the group health plan is primary, and Medicare is secondary (Medicare Secondary Payer (MSP) rules). This means you cannot encourage, pressure or steer an employee off the group plan and onto Medicare. But you can provide neutral, factual information about Medicare options.

Compliant Ways to Start the Conversation

1. Send a neutral Medicare education notice to all Medicare-eligible employees, or even to all employees. Many employers send an annual Medicare eligibility letter that includes:

• Statements that the group plan remains primary
• Acknowledgment that the employee may be eligible for Medicare
• Non-steering, factual guidance on how Medicare works with employer coverage
• Instructions to contact Social Security or Medicare for personalized advice

2. Provide CMS-approved materials, such as:

• “Medicare & You” handbook
• CMS fact sheet: “Who Pays First?”

Avoid anything that sounds like:

• “You should go on Medicare.”
• “The group plan is expensive for older employees.”
• “We prefer if you move to a Medicare supplement.” 

These statements violate MSP anti-steering rules and can trigger civil penalties.

Compliant Sample Script You Can Give the Employer:

“We noticed you may now be eligible for Medicare. Because our group has more than 20 employees, your employer coverage remains primary and Medicare is secondary. You are not required to enroll in Medicare, but some employees choose to review their options. If you would like more information, Medicare and Social Security can explain how Medicare works with employer coverage and what your choices are.”

What happens if they DO want a Medicare Supplement or more information about Medicare options? The employer can refer them to Medicare and Social Security and can tell them that their broker may also be able to provide assistance.

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