How does Medicare interact with a small business health plan?   

For small businesses with less than 20 employees, Medicare is always primary and the employer provided plan is always secondary.

Small businesses that reimburse the cost of Medicare to more than one employee need to consider the impact of market reform laws under the Affordable Care Act. Unless the reimbursements are made to employees who are also covered by group health insurance (in addition to Medicare) then this would create a group health plan (the reimbursement plan) that does not meet the requirements, thereby triggering excise tax penalties under IRC 4980D that can be severe. Since few small businesses wish to have Medicare-eligible employees also on the employer-sponsored group health insurance, this strategy is often impractical.

Since the Medicare-eligible person(s) are often the business owner(s). there may be business planning work-arounds available to avoid excise tax problems.

See the slide presentation at http://www.medicarerights.org/PartB-Enrollment-Toolkit/Medicare-and-Employer-Based-Insurance-The-Basics.pdf for a full explanation of this complicated topic.

Other resources:

Medicare Guide: Who pays first?

Medicare and You 2012

Medicare Interactive: Filling the gaps in Medicare: employer insurance

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