How Medicare Works for People Who Are Still Employed After Turning 65 (And What You Should Do About It)

Key Takeaways:

1. If you’re working past 65, you may be able to delay Medicare enrollment without penalties, but it depends on your job’s health coverage.
2. Understanding how Medicare coordinates with employer insurance is essential to avoid coverage gaps and unexpected costs.

Why Medicare Is a Hot Topic for the Still-Employed

Turning 65 doesn’t mean you have to retire—or immediately sign up for Medicare. If you’re still employed and have health insurance through your job, you’ve got decisions to make. Missteps can lead to penalties or unexpected expenses, so let’s untangle the rules and help you make confident choices.

Decoding Medicare Basics

Before diving into employment scenarios, it’s crucial to understand how Medicare works. Medicare is divided into parts:

• Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing care, and some home health services.
• Part B (Medical Insurance): Covers outpatient care, doctor visits, and preventive services.
• Part C (Medicare Advantage): Offered through private companies as an alternative to Original Medicare, bundling Parts A and B and often including extras.
• Part D (Prescription Drug Coverage): Helps pay for medications.

For most people, Part A is premium-free if you’ve worked and paid Medicare taxes for at least 10 years. Part B requires a monthly premium, and enrolling on time is essential to avoid late penalties.

Employer Coverage vs. Medicare: Which Takes the Lead?

If you’re working for an employer with 20 or more employees, your job’s health plan typically remains primary. Medicare acts as secondary insurance, helping cover costs your employer plan doesn’t.

However, if your employer has fewer than 20 employees, Medicare becomes primary, and your employer coverage shifts to secondary. This distinction is critical because failing to enroll in Medicare when it’s primary can leave you with unpaid medical bills.

Should You Sign Up for Medicare While Working?

The answer depends on your employer’s health plan and your needs. Here’s a breakdown:

• Large Employer Coverage (20+ Employees):
  You can delay enrolling in Medicare Parts A and B without penalties if you’re covered by a group health plan. However, many choose to enroll in Part A (since it’s usually premium-free) to supplement their coverage.

• Small Employer Coverage (<20 Employees):
  Enroll in Medicare Parts A and B as soon as you’re eligible. If you delay, Medicare penalties could apply, and your employer plan may not fully cover your costs.

The Medicare Late Enrollment Penalty: Avoid It at All Costs

Missing key deadlines can lead to lifelong penalties:

• Part B Penalty: For every 12-month period you could have enrolled but didn’t, your Part B premium increases by 10%.
• Part D Penalty: A 1% increase to your premium for every month you go without creditable prescription drug coverage.

To steer clear of these penalties, ensure you enroll during your Initial Enrollment Period (IEP) unless you qualify for a Special Enrollment Period (SEP).

Navigating Enrollment Periods When You’re Still Working

Timing is everything when it comes to Medicare. Here’s what you need to know:

Initial Enrollment Period (IEP)

Your IEP spans seven months: three months before your 65th birthday, the month of your birthday, and three months after. If you’re still employed, you may choose to delay Parts A and B enrollment, provided your employer coverage qualifies as “creditable.”

Special Enrollment Period (SEP)

You’re eligible for an SEP if you’re working and covered under a group health plan. This allows you to sign up for Parts A and B anytime while you’re employed or within eight months after your employment or coverage ends—whichever comes first.

How Medicare Works with Your Health Savings Account (HSA)

If you’re contributing to a Health Savings Account (HSA) through a high-deductible health plan, enrolling in Medicare can complicate things. Medicare enrollment disqualifies you from making HSA contributions.

To avoid tax penalties:

• Stop HSA contributions at least six months before enrolling in Medicare.
• Use existing HSA funds for eligible expenses, even after Medicare enrollment.

Evaluating Employer Plan vs. Medicare Coverage

How does your employer plan stack up against Medicare? Review these factors:

1. Premium Costs: Consider the monthly premiums for your employer plan compared to Medicare Part B.
2. Coverage Gaps: Medicare often includes more extensive coverage for services like durable medical equipment or skilled nursing care.
3. Prescription Drug Coverage: Ensure your employer’s drug plan is “creditable” to avoid Part D penalties if you delay enrollment.

Transitioning from Employer Coverage to Medicare

When you decide to leave your job or retire, switching fully to Medicare is your next step. Here’s how to do it smoothly:

1. Get a Letter of Creditable Coverage: Your employer or insurer must confirm your health plan’s compliance with Medicare rules.
2. Enroll During Your SEP: Use the Special Enrollment Period to avoid penalties. Remember, you have eight months, but enrolling early ensures seamless coverage.
3. Add Part D or a Medicare Supplement Plan: Evaluate options to fill any gaps in Original Medicare coverage.

Handling COBRA Coverage After Leaving Work

COBRA allows you to continue employer health insurance after leaving your job, but Medicare doesn’t recognize COBRA as creditable coverage. If you delay enrolling in Medicare while relying on COBRA, penalties could apply.

If eligible, enroll in Medicare first and consider COBRA only as a secondary option.

The Costs of Staying on Employer Insurance vs. Switching to Medicare

Balancing costs is vital. Employer insurance often includes family coverage, which Medicare doesn’t. However, Medicare may be more affordable for individuals. Evaluate these scenarios to decide what works best:

• If your employer covers most of your insurance premiums, staying on their plan might save money.
• If you’re paying high premiums or need extensive medical services, Medicare might be more cost-effective.

Common Medicare Mistakes When Still Employed

Avoid these pitfalls:

1. Assuming Medicare Isn’t Necessary: Even with employer insurance, Medicare might cover expenses your plan doesn’t.
2. Missing Deadlines: Failing to enroll during your SEP leads to penalties and coverage gaps.
3. Ignoring Prescription Drug Coverage: Not verifying your employer plan as creditable could result in Part D penalties.

Your Next Steps for Confident Medicare Decisions

Still unsure? Here’s a quick checklist:

• Confirm whether your employer coverage is primary or secondary to Medicare.
• Decide if you want to enroll in Medicare Part A or delay coverage.
• Mark key enrollment periods to avoid penalties.
• Compare costs and coverage of your employer plan with Medicare.

Taking proactive steps now will save you from costly mistakes later.

Finding the Right Balance: Medicare and Employment

Navigating Medicare while working can feel overwhelming, but with the right knowledge, it’s manageable. Evaluate your employer coverage, understand how Medicare fits in, and time your enrollment wisely. This combination ensures you’ll have robust health coverage without unnecessary expenses.