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What To Do About Medicare When You are Still Working at 65

Danielle Kunkle - December 27, 2017 06:25 PM

More people than ever are working past age 65 these days. A Pew Research Center analysis early last year found that nearly 19% of Americans ages 65 or older reported being employed.

This results in a whole slew of questions related to Medicare and employer coverage. Some of the common questions we hear at Boomer Benefits are:

“Do I have to enroll in Medicare if I have employer coverage? Would it be cheaper to go on Medicare than to stay with my employer coverage? Is there a penalty if I enroll into Medicare later since I was still working? When do I need to sign up?”

Fortunately, Medicare generally doesn’t penalize you for late enrollment into Medicare if you have other creditable coverage from a large employer. Let’s look at some common scenarios:

Working for a Large Employer (20+ employees)

When actively working for a large company, your employer coverage will be primary and Medicare will be secondary. Most people in this scenario enroll in at least Medicare Part A, since it’s free for most beneficiaries at 65 and can reduce your hospital spending.

One exception would be if you are contributing to a health savings account. You cannot continue contributions into an H.S.A. if you are enrolled in any part of Medicare.

Whether you enroll in Parts B and D is up to you. Most employer group coverage already offers both outpatient and drug coverage, so you may not want to spend the monthly premiums for these two parts. You can view those estimated premiums here. You can delay your Part B with no penalty until you retire. If your employer coverage is as good as Medicare Part D, you can delay that as well. Companies whose drug coverage is not as good as Part D are required to notify you of this annually so that you can decide whether to enroll in Part D now or wait until later and an incur the late penalty.

Please be aware that Cobra Coverage is not creditable coverage. If you retire and you elect Cobra coverage, you’ll need to enroll into Part B within 8 months of your last day worked. Otherwise late enrollment penalties will apply, and you’ll have to wait for the next General Enrollment Period to enroll.

This can mean many months without coverage. Unfortunately, it’s very common because so many people are just unaware of it. Be sure to mark your calendar and apply before the eighth month to avoid this situation.

Working for a Small Employer (Less than 20 employees)

Medicare is primary if your employer coverage has less than 20 employees. You will want to enroll in Medicare Parts A and B. Your employer coverage will be secondary to Medicare. Again, if your employer coverage has creditable drug benefits, then you can delay enrollment into Part B until later when you retire.

Over the years I’ve seen a few situations where someone’s group insurance coverage paid even if the person didn’t have Part B. This is rare and is not a guarantee so don’t be tempted not to enroll in Part B. If the insurance carrier changes their policy, you’ll suddenly find yourself paying 80% of all your Part B outpatient services. This can include very expensive items like surgeries. It’s not worth the risk. Furthermore, you’ll incur late enrollment penalties in this situation. Every year that you wait to enroll will add a 10% penalty to your premiums later.

People working at small employers should always review their options for leaving the group insurance and electing Medicare supplement coverage as well. Sometimes we find that it’s a better value than the employer coverage. A careful review of your plan’s summary of benefits compared to the costs of Medicare + Medigap and Part D can help you decide.

Retiree Coverage

Some people are no longer actively working at 65 but have a retiree plan that is offered by their former employer. Retiree coverage is secondary to Medicare, so you’ll want to enroll in both Medicare Parts A and B. Check the summary of benefits for the retiree plan to see if it offers creditable drug coverage. You can delay enrollment into Part D if it does.

Should your former employer ever discontinue or change its retiree coverage, you’ll have a special election period available to opt out of it in lieu of a Medigap plan if you prefer.

In conclusion, it’s normal to feel some uncertainty about your Medicare choices when you are still working. The good news is that the rules are pretty clear. Play by the guidelines given here and get help from an expert if you still have questions.

Danielle Kunkle is a contributor and co-founder at Boomer Benefits, where she and her team help Baby Boomers navigate the New to Medicare maze at age 65.

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