What Employees Over 65 Cost a Small Group Plan in 2027

For employers weighing employees over 65 group health insurance, the core rule is simple: on most fully insured small group plans, older employees are age-rated up to a 3-to-1 premium ratio, and whether Medicare pays first turns mainly on whether the company has fewer than 20 employees or 20 or more. That is the cost and compliance question HR and finance leaders at companies with roughly 20 to 250 employees are trying to solve before renewal.

Every renewal, someone asks whether the company can save money by moving its older employees onto Medicare. The honest answer depends on your headcount, your state, and how your plan is funded. Under 20 employees, Medicare usually pays first and you have real options. At 20 or more, federal law takes most of those options away, and pushing anyone toward Medicare can trigger penalties that cost far more than the premium you hoped to save.

This guide walks through how age-banded premiums work for employees over 65, when Medicare is primary, how state rating rules and PEO arrangements can change the analysis, what limits apply to Medicare-related incentives, and which funding strategies may fit groups with older employees. Getting those rules right helps control benefits spend, avoid compliance mistakes, and choose the right path before your next health plan renewal.

Why an older employee costs more on a small group employer health insurance plan

Fully insured small group plans set each person's premium partly by age. Federal rules cap the spread at 3 to 1 for adults, and CMS publishes a default age curve that carriers must use unless a state sets its own.

Here is what that curve does to a monthly premium. The base rate below is an example. Your carrier's rate sheet lists the real age 21 rate for your plan.

The curve stops at 64. A 67-year-old employee is billed at the same 3.000 factor as a 64-year-old. Age affects the employee-only rate here. Spouses and dependents are rated by their own ages.

What a 2027 renewal adds for an older employee

A renewal raises every age band by the same percentage, so your oldest employees see three times the dollar increase of your youngest.

Benefitra's 2027 state funding analysis tracks the small group rate filing in every state. The median across all 50 states is 12.8%, with final approved rates in 17 of them. Applied to the example above:

• Age 21: $500 rises to $564, an extra $64 a month.
• Age 40: $639 rises to $721, an extra $82 a month.
• Age 64 and older: $1,500 rises to $1,692, an extra $192 a month, or $2,304 a year.

Texas carriers requested 18.94% for 2027, which would add $284 a month to that same $1,500 rate. Our Texas funding analysis by employer size and the matching state pages show each filing.

Medicare looks cheap next to that. The 2026 Medicare Trustees Report puts the standard Part B premium at $202.90 a month for 2026 and estimates $209.50 for 2027. Part B alone is not full coverage, since most people add drug coverage and a supplement, but it explains why the question comes up.

Your state may not age-rate at all

The 3 to 1 curve is the default, not the rule everywhere. CMS's table of state rating rules shows several states that narrow it or drop it for small groups:

If your group is in New York or Vermont, moving an older employee off the plan does not lower the per-person premium the way it does elsewhere. The math in this article mostly applies to the states on the federal curve.

The 20-employee Medicare rule

Medicare's working aged rule decides who pays first when an employee aged 65 or older stays on your plan. CMS's employer size guidance sets the test:

• Count full-time and part-time employees, not just people enrolled in the plan.
• You are a 20-or-more employer if you had at least 20 employees on each working day of 20 or more calendar weeks in the current or preceding year. The weeks do not need to be consecutive.
• If you reach the threshold partway through a year, Medicare becomes secondary for the rest of that year and all of the next one. Active workers with qualifying employer group health coverage at 20 or more employees can usually delay Medicare Part B without a late enrollment penalty. Medicare eligibility typically begins at age 65, and the initial enrollment period is a seven-month window around that birthday.

Under 20 employees on a single-employer plan, Medicare is the primary payer for employees and spouses who are 65 or older. Your plan pays second.

At 20 or more, your plan pays first, and that current-employment coverage is what lets many workers delay Part B safely if employed. You must offer older employees and their spouses the same coverage you offer everyone else.

What you cannot do at 20 employees or more

Federal rules at 42 CFR 411.103 bar an employer from offering Medicare beneficiaries "financial or other benefits as incentives not to enroll in, or to terminate enrollment in" a group plan that would pay before Medicare.

That rules out the common workarounds once you reach 20 employees:

• Paying an older employee a bonus or raise for dropping the group plan
• Offering to cover their Medicare or supplement premiums instead
• Giving older employees a thinner plan or a different contribution

The penalties are not small. Each violation of the incentive ban can bring a civil money penalty of up to $5,000, adjusted each year for inflation. Separately, Section 5000 of the Internal Revenue Code imposes a tax of 25 percent of the employer's group health plan expenses for the year when a plan is nonconforming. On a $600,000 plan, that is $150,000.

An employee aged 65 or older can still choose Medicare on their own. You just cannot steer, pay or pressure them to make that choice.

What a company under 20 employees can do

Below the threshold, Medicare pays first, so the incentive ban does not reach your plan in the same way. Plans for employers under 20 are often written to pay as if Medicare-eligible employees have enrolled in Parts A and B. Check the coordination of benefits section of your plan document. In some under-20 arrangements, the employer plan pays secondary because the plan assumes Medicare is primary.

That creates a trap. An employee who skips Part B because "I have work coverage" may need to sign up for Medicare at 65 if the plan is written to coordinate that way, or find the plan pays only what Medicare would not have covered, leaving them with most of the bill. Medicare.gov also notes an extra 10% Part B premium for each year someone could have signed up and didn't, unless a Special Enrollment Period applies. When employer coverage ends, Medicare enrollment generally triggers a Special Enrollment Period that begins then, and the employee usually has eight months to enroll in Part B. COBRA is not the same as active group coverage, and missing that first chance could force someone to wait for the general enrollment period. Missing that eight-month window can trigger a late enrollment penalty. Tell employees nearing 65 to confirm the plan's Medicare rules and how employer coverage works with Medicare with the carrier or benefits administrator first.

Paying an employee's Medicare premiums tax-free is harder than it sounds. A QSEHRA is only available if you offer no group health plan to anyone. An ICHRA cannot be offered to the same class of employees as your group plan, and age is not one of the allowed classes. A taxable pay increase is simpler, but once someone enrolls in any part of Medicare, they can no longer contribute tax-free funds to a health savings account, and premium-free Part A is hospital coverage, so have your benefits counsel review it first.

The PEO catch for small employers

This point rarely comes up when a small company joins a PEO. A PEO health plan is usually a form of group coverage through a multiple employer structure. CMS's guidance says Medicare is secondary for working aged employees when two or more employers sponsor or contribute to a multiple employer plan and at least one of them has 20 or more employees.

In practice, a 12-person company that joins a PEO plan alongside larger clients can lose its under-20 status for Medicare purposes. That means employees may not be able to rely on both Medicare and the PEO-sponsored employer plan in the same way they could under a true under-20 single-employer arrangement. The plan becomes primary for that company's employees over 65, and the employer can no longer require them to enroll in Medicare. Certain multi-employer plans can alter the standard coordination rule for Medicare through a Small Employer Exception, but the plan has to apply for that exception for named employees of employers under 20.

The same logic applies to Taft-Hartley plans and association plans with mixed employer sizes. Before you sign, ask the PEO in writing whether its plan holds a Small Employer Exception, who it covers, and how employer coverage works for over-65 employees under that arrangement. Our guide to how PEOs price plans by age band covers the pricing side of the same decision.

When funding changes help an older workforce

For a company with 20 to 49 employees and several people over 60, the age curve is often the biggest driver of fully insured cost, and Medicare is off the table as a lever. That is where the funding arrangement matters more than plan design, though employers comparing funding paths should also weigh expected out-of-pocket costs for older workers, not just premiums.

PEO, level-funded and captive arrangements do not bill each person on the 3 to 1 curve. They price the group as a whole, with age as one input into underwriting. Older employees still raise the group's expected claims, but employers should evaluate Medicare options separately from funding because plan funding does not change Medicare coordination rules, and the employer is not paying a fixed per-head surcharge for each birthday.

Benefitra's 2027 state funding analysis models a 30-employee group over five years. A PEO beat staying fully insured in a median 95% of modeled runs across 50 states. A level-funded plan did so in 91% across the 47 states with a level-funded result. Those results use average group assumptions, not an older census. An older group should run its own ages through the Benefitra funding simulator before relying on them.

A six-step check before your 2027 renewal

1. Count employees the Medicare way. Include part-time staff and check every week of this year and last year against the 20-employee test.
2. Pull your carrier's age-rated census. Find each employee's monthly rate and how many are 60 or older.
3. Check your state's rating rule. If you are in New York or Vermont, age does not change the small group rate.
4. Confirm the plan's Medicare coordination in writing. This matters most for employers under 20, for anyone moving into a PEO or other shared plan, and when employer insurance or retiree coverage may affect who pays first.
5. If someone is leaving coverage, verify timing before you rely on COBRA. COBRA can temporarily continue the employer group health plan for 18 to 36 months, but it does not count as current employment, so Medicare generally pays first for someone 65 or older on COBRA, and COBRA does not replace timely Medicare enrollment. COBRA is not other creditable coverage for delaying Part B and may not protect someone who waits too long to enroll. If the person may elect a Medicare Advantage plan or Part D after losing coverage, check the two-month enrollment deadline for those options. Also confirm whether any prescription drug coverage is creditable coverage, keep the annual creditable coverage notice, and ask for that status in writing. If the plan's prescription coverage was creditable, Part D enrollment should generally happen within 63 days after it ends.
6. Model a different funding arrangement if older employees are driving your renewal and you have 20 or more people. Our ACA employer mandate guide covers the separate rules that start at 50.

Frequently asked questions

Sources

1. Centers for Medicare & Medicaid Services, Center for Consumer Information and Insurance Oversight, "Guidance Regarding Age Curves and State Reporting" (Appendix I, Federal default standard age curve), December 16, 2016. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/final-guidance-regarding-age-curves-and-state-reporting-12-16-16.pdf
2. Centers for Medicare & Medicaid Services, "Market Rating Reforms, State Specific Rating Variations," accessed October 14, 2026. https://www.cms.gov/cciio/programs-and-initiatives/health-insurance-market-reforms/state-rating
3. Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, "2026 Annual Report of the Boards of Trustees," June 9, 2026. https://www.cms.gov/oact/tr/2026
4. Centers for Medicare & Medicaid Services, "MSP Employer Size Guidelines for GHP Arrangements, Part 1 Introduction," July 1, 2024. https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Group-Health-Plans/GHP-Training-Material/Downloads/MSP-Employer-Size-for-GHP-Arrangements-Part-1.pdf
5. Code of Federal Regulations, 42 CFR 411.103, "Prohibition against financial and other incentives," via Cornell Legal Information Institute, accessed October 14, 2026. https://www.law.cornell.edu/cfr/text/42/411.103
6. United States Code, 26 U.S.C. 5000, "Certain group health plans," via Cornell Legal Information Institute, accessed October 14, 2026. https://www.law.cornell.edu/uscode/text/26/5000
7. Medicare.gov, "Avoid late enrollment penalties," accessed October 14, 2026. https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties
8. Benefitra, "2027 Funding Analysis by Employer Size" state pages (2027 small group rate filings and five-year funding results), figures generated September 2026. https://benefitra.com/health-insurance-funding/texas/employer-size/