You may have heard that you are required to take Medicare at age 65 – let’s tackle that first.
There are five circumstances where you have to take Medicare at age 65 to avoid a penalty.
One circumstance where you are automatically enrolled in Medicare.
And two circumstances where you DO NOT have to take Medicare at age 65 and you WILL NOT be penalized.
Look, we live in America, and you don’t HAVE to do anything… however, if you choose not to do some things, the government helps persuade you by imposing penalties.
So, let’s start with the 5 situations where you have to sign up for Medicare:
If any of these 5 situations apply to you when you become eligible for Medicare at age 65, you must enroll in Medicare or face penalties.
1. You do not have any health insurance
If you do not have health insurance when you turn 65 and you decide to refuse Medicare, should you later choose to get Medicare, you could face the Part B and the Part D penalties (more on those later).
2. You are covered by COBRA
COBRA is continuation of heath coverage through an employer you may have left. COBRA only lasts so long and… if you carry COBRA past 65, choosing not to get Medicare, once you decide to get Medicare, you could face the Part B and Part D penalties. COBRA coverage is not a valid reason to delay Medicare.
3. You are covered by an individual plan through the ACA marketplace
This doesn’t necessarily result in a penalty, however, once you turn 65, any subsidies you may have been getting on the ACA individual marketplace go away.
What this typically means is that an ACA marketplace plan becomes considerably more expensive, with worse coverage, than you would get on Medicare.
If you have an individual plan through the marketplace at 65, make the switch to Medicare.
4. You are covered by a retiree health plan
Certain companies may offer a retiree health plan. More specifically, a retiree plan that is NOT connected to Medicare.
If this is your coverage once you reach 65 years old, you would need to move to Medicare in order to avoid penalties.
There are some companies that offer some form of Medicare retiree plan.
Oftentimes, these plans are a mix between a Medicare Supplement and a Medicare Advantage plan. They have monthly premiums and networks. In order to get them, you need to go on Medicare Parts A and B anyway, so these are a different type of plan and do not fall in this category.
This means if you have a company Medicare plan, you don’t get penalized because… well… you have to take Medicare to have them.
5. You are covered by a company plan, but your company has fewer than 20 employees
This gets a little tricky, and again, this isn’t necessarily the Part B and Part D penalties, but something else.
If your company has fewer than 20 employees (19 or less), what happens is that the insurance carrier that provides you and your employer with health insurance pays secondary to Medicare.
Medicare gets the bill first.
Your insurance company through work gets the bill second, after Medicare has already covered it’s part.
Well, if you have a healthcare bill and the insurance carrier sees that you are eligible for Medicare, but you are not signed up for Medicare yet, AND you are working for a company with fewer than 20 employees… if that bill does not go to Medicare first, that insurance company can say, “nope we’re not going to cover this.”
At which point YOU are responsible for that full medical bill.
This is because if you don’t have Medicare as primary coverage, YOU become primary coverage and pay your part of the bill first while your work insurance pays second. But, you aren’t an insurance company with limits. You get the full exposure.
Not. Fun.
If you are approaching 65 and working for a company with fewer than 20 employees, reach out to your agent or to us to discuss your situation.
Automatically signed up for Medicare
Taking Social Security benefits before age 65.
If you are taking Social Security benefits before you turn 65, you will automatically enrolled in both Medicare Part A and Part B.
You can proactively reach out to the Social Security Administration and stop Part B enrollment, but you will be enrolled in Part A.
And this will become a very important detail here in a minute as it relates to Health Savings Accounts or HSAs.
Now the reason to consider stopping Part B in this instance is because Part B comes with a monthly premium that you would have to pay.
If you are still working and still paying for insurance through your work plan, you can delay part B to save you some money every month… and this leads us nicely into the 2 scenarios where you may turn 65, choose not enroll in Medicare at all, and avoid any penalties.
Waiting after 65 and no penalties
You work for a company with 20 or more employees
If you work for a company with 20 or more employees AND you are covered by that group health insurance plan, you DO NOT have to go on Medicare and you will not have any penalties.
Many people choose to work past 65, and for many (not all) their work plan is less expensive than Medicare. If this happens to be you, delaying Medicare until you retire at some later date – we’ll say 67 – isn’t a problem and you will not face penalties.
As long as you are covered by a group health insurance plan past 65 you can use what’s called a Special Election Period.
A special election period is a 63-day window from when you lose your company coverage where you can pick up Medicare Parts A and B, you can pick up a Medicare Supplement plan and a Part D drug plan, or you can get a Medicare Advantage plan with no penalties or fear of getting denied for pre-existing conditions.
We highly recommend starting that transition process BEFORE the day you lose company coverage – typically 80-90 days before you lose coverage is a good time to start the sign up process.
Your are covered by your spouse’s work plan (of 20 or more employees)
If your spouse is currently employed with a company with 20 or more employees and you are covered by your spouse’s group health insurance plan through their work, you do not have to go on Medicare and you would not have any penalties. Same rules apply here as if you were the one working.
Medicare and still working
Even if you and/or your spouse are working and covered by group health insurance through your company, it can still make sense to consider Medicare depending on how much you are currently paying for health insurance through work.
Depending on where you live and plans available in your area, Medicare may cost you less and have more coverage than your work plan.
If you go on Medicare, you can still keep working. In fact, your company may prefer this from a cost savings perspective.
You don’t make your health insurance decisions based on your company’s cost savings.
Make your decisions based on your needs, but know that people take Medicare and continue working all the time – as long as the costs and coverage setup are beneficial for them.
Don’t forget the HSA
One big variable in this decision between work and Medicare is the Health Savings Account or HSA.
If you sign up for any part of Medicare, whether that is A only, or both A and B, neither you nor your employer can contribute to your HSA anymore.
In that scenario earlier where you are automatically enrolled in Medicare because you were taking Social Security before age 65, you and your employer have to stop HSA contributions the month before you turn 65, even if you just have Part A.
For some people, their employer contributes a lot of money to their HSA and it is important to max out that HSA for taxes and other reasons, so this is an important topic for a lot of you reading.
If you do not have an HSA, and would like to keep working, a lot of people choose to sign up for Medicare Part A only, since it doesn’t cost anything for most people, and they continue working and they stay on their work insurance plan.
We have a much more detailed article on that right here: Medicare & HSAs Do Not Get Along
Where to get help
These are the first major decisions headed your way as you approach your 65th birthday.
Once you sign up for Medicare, there are a whole lot more important decisions coming your way, like Medicare Advantage vs Medicare Supplement, drug coverage, and many others.
As you are approaching your 65th birthday, remember this article.
If you have questions or would like to know what would make the most sense for you based on your situation, reach out to your agent or, if you don’t currently have an agent for Medicare, we’d be happy to help.
