Should You Enroll in Medicare While You’re Still Working?

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Your employer’s health insurance may or may not be the best option once you turn 65.

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Turning 65 is a milestone for many. This is commonly known as the “official” retirement age because you’re finally eligible for Medicare insurance coverage.

However, many individuals choose to work well beyond age 65 for a multitude of reasons. If you started saving for retirement late or simply enjoy your work, then Medicare might not be on your radar.

If you’re getting coverage through your employer, you might think it’s okay to skip the Medicare paperwork for now. But keep in mind that neglecting to enroll by your deadline could have financial implications. Here’s what you need to know.

What Are Medicare Parts A and B?

Medicare Part A refers to health insurance for inpatient care, skilled nursing care, hospice care, and home health care. Part B covers outpatient services like doctor’s office visits, urgent care, preventative services, and durable medical equipment.

Just like with your employer’s health insurance, Medicare recipients pay monthly premiums. For 2020, the premium for Medicare increased to $144.60 per month, up from $135.50 in 2019.

To be eligible for Medicare, you must be a U.S. citizen or permanent resident who’s been living in the country for five years.

When Do I Have to Sign Up for Medicare Parts A and B?

If you or your spouse have at least 10 years of work history and have paid Medicare taxes for those 10 years, you qualify for full Medicare benefits at age 65 or older. Paying payroll taxes means that you will not have to pay premiums for Part A benefits. You do not need any work history to qualify for Part B benefits.

You can qualify for premium-free Part A benefits based on your spouse’s work history if the spouse is at least 62 years old and you are least 65. Note that you also may qualify based on the work history of a divorced or deceased spouse.

You can enroll in Part B without buying Part A, but you must enroll in Part B if you buy into A.

You become eligible to enroll in Medicare in the three months prior to the month in which you turn 65, the month of your 65th birthday, and the three subsequent months. If you sign up after this seven-month window, you could be subject to late penalties—10 percent for every year you delay enrollment. These penalties appear as a 10 percent surcharge on your monthly premium for Medicare Part B (and Part A, if you don’t qualify for premium-free coverage).

For example, if you delay Medicare enrollment by one year, you’ll be paying $144.60 + 10 percent per month—an extra $173.52 per year! Over 20 years, that’s nearly $3,500 out of your retirement savings, if premiums stay the same.

Special Enrollment Period

Once your initial enrollment ends, you may have the chance to sign up for Medicare during a Special Enrollment Period (SEP).

Under a group health plan, a SEP allows you to sign up for Part A and/or Part B as long as you or your spouse are working.

You also have an 8-month SEP to sign up for Part A and/or Part B that starts at one of the following times (whichever happens first):

  • The month after employment ends
  • The month after group health plan insurance ends

You typically do not pay a late enrollment penalty if you sign up during a SEP.

Comparing Medicare vs. Your Employer-Sponsored Insurance

If you or your spouse are still working after age 65 and have employer-sponsored health insurance, it might not seem logical to enroll in Medicare. But consider that Medicare Part A is free for most citizens and will cover some of your largest medical expenses, such as hospitalization. Even if you decide to maintain private insurance, it’s hard to ignore that Medicare Part A offers attractive incentives.

The downside is that enrolling in Medicare means you are no longer able to contribute to a health savings account.

As for Medicare Part B, there is an exception that will help you avoid penalties if you continue to work and maintain enrollment in your employer’s insurance plan. If you are working for a company with more than 20 employees, you do not need to enroll in Medicare Part B because your employer is the primary insurer (that is, the insurance that pays first on health claims), while Part B will be secondary. In addition, you also have eight months after leaving your job to enroll in Medicare without incurring penalties.

For individuals who work for a company with fewer than 20 employees, enrolling in Medicare Part B should be a priority. In this case, Medicare will be the primary insurer. This is a good thing, as Medicare will likely cover items that your private insurance will not, allowing you to reduce out-of-pocket costs.

When you stop working and are eligible for COBRA coverage, it’s best not to wait until your COBRA coverage ends before enrolling in Medicare. COBRA coverage does not grant you immunity from penalties.

Bottom Line: Should You Enroll in Medicare if You’re Still Working?

The best practice when you become eligible for Medicare is to review the costs of your employer-sponsored insurance and Medicare premiums, as well as the coverage of each plan to see which one will give you better benefits and/or lower costs. Take into account any deductibles, coinsurance, or co-pays to understand what you’re paying for.

In many cases, you might find it financially beneficial to enroll in Medicare when you’re eligible, even if you can extend your deadline without penalty.

Note that there are many exceptions to the general rules of Medicare. As always, it is best to consult with a professional about your unique situation.

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