It’s becoming more and more common for people to delay retirement until long past the age of 65 while actively working and often stay on an employer plan until they are ready to retire. There are a few things that you will need to know and processes to follow if you are one of those people.
The first important consideration is to determine if you can delay going into Medicare without penalty and how Medicare coordinates with your employer coverage. This info is for people who are over 65 as the Medicare coordination rules are different for people under 65 or with disabilities. Contact us for more information if you are in one of those categories.
If you (or your spouse) actively work for an employer with 20 or more employees and are covered under that employer’s insurance, you can likely delay Medicare past 65 without penalty. Medicare becomes secondary to your employer plan, and you can remain on it if you like. How it coordinates depends on the size of your company.
Most people opt to take Medicare Part A when they turn 65 because it is premium free if you have worked and paid into Medicare for at least 10 years. If your employer has over 20 employees, Part A can coordinate to lower your costs if you have a hospital stay while on the group insurance. If your deductible is more than the current Part A deductible ($1632 for 2024) then you will only have to pay that amount and Medicare picks up the rest of any Part A hospital services.
Because Part B has a premium, most people on large employer groups (over 20 employees) delay going into Part B until they retire. As long as your group plan includes prescription drug coverage you can enroll in Part B later on without penalty. Once you leave the employer plan the insurance company will send you a letter of creditable coverage, which you will need to keep to show Medicare that you were covered and avoid penalties for Parts B and D.
If you (or your spouse) actively work for an employer with fewer than 20 employees and are covered by that insurance, Medicare will be primary, and the employer insurance will be secondary. So, you must enroll in both Medicare Part A & B when you turn 65 to avoid a late enrollment penalty. Since you will be paying a Part B premium, it often makes sense to enroll in Medicare supplement plans rather than stay on your employer plan. We can help you compare the costs to make an educated decision.
Retiree coverage, including COBRA, does not count as creditable coverage for Medicare, so you will need to enroll in Medicare, both Parts A and B, if you are on COBRA when you turn 65 or immediately after you leave employment to avoid a late enrollment penalty. This is due to the fact that Medicare is primary and COBRA secondary for people over 65. If you have family members under 65 on your group plan and the employer allows it, they can stay on the COBRA plan. However, the cost for COBRA is usually prohibitive.
One exception is for people with End-Stage Renal Disease who are on COBRA. If you have ESRD, your COBRA will pay primary during a special 30-month coordination period between Medicare and COBRA.
Another exception would be if you are contributing to an HSA account and want to continue doing so, then delaying enrollment in both Parts A and B is necessary to avoid tax consequences. Once in Medicare you will no longer be able to contribute to your HSA account. Make sure that the tax benefits of an HSA outweigh the savings from the lower cost of Medicare plans.
Medicare has a 6-month rule for HSA accounts. If you enroll in Medicare during your initial enrollment period (when you are turning 65), you should stop contributions the day before the first day of your birthday month.
If you are enrolling after your initial enrollment period, you should stop contributing 6 months before you start to receive Medicare. Once Medicare is active, you can no longer contribute. If you have a spouse on the employer plan, they can still contribute. Check with your tax or financial advisor for more about this.
Once you determine whether you must enroll in Medicare or have the option to delay, the next important consideration is to determine which is the most cost-effective option for your health insurance while you are working past age 65 and when you get ready to retire. This will depend on how much your group plan costs in premiums, copays, deductible and out of pocket costs. For many people it is less expensive to move to Medicare.
People on any group health plan, including most union-based plans, can leave their plan at anytime and go into Medicare as primary insurance. Here at MCG we help our clients to assess their personal situation and compare the group plan costs with what Medicare would cost side-by-side. The numbers speak for themselves.
For more information about making the transition to Medicare, check out our web resources.
If you have any additional questions, contact our team today!
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