Medicare and Working Past 65: What You Should Know

If an employee plans to keep working past retirement age at 65, they will need to make some decisions about their health insurance and Medicare. Navigating this process can be confusing since different factors affect what can and cannot be done with Medicare and employer insurance at the same time. The employee’s age, the size of the company they work for, and other factors can impact which parts of Medicare can be accessed. Penalties can also apply in certain cases, making it important to understand the interplay between Medicare and your employer.

Is It Necessary to Enroll in Medicare When Working at age 65?

Those who are still working at the age of 65 have additional leeway in terms of signing up for Medicare. However, in general, senior citizens will find it is in their interest to sign up for Medicare on time, so they aren’t hit with late enrollment penalties which can be costly over time. Those working at age 65 and have coverage through a group healthcare plan provided by an employer that employees 20 people or more do not have to enroll in Medicare right away. However, if the employer has fewer than 20 employees, it is necessary to take both parts of Medicare in A and B as it will serve as the employees’ primary form of insurance.

Even if the employee has small group insurance through their less-than 20 employee company it is prudent to sign up for Medicare. There are scenarios where a small group plan can (and will) refuse to pay for insurance claims. So having the added coverage from Original Medicare can really be helpful. Be sure to reference the Medicare Enrollment Considerations section further down in this article.

Can You Have Private Insurance and Medicare?

You can have private insurance and Medicare at the same time. Medicare is designed to work in tandem with employer coverage for those who are still working after retirement age, with certain conditions that apply. One of the two will be the primary insurance and the other will be your secondary insurance, and that’s where some decisions may have to be made.

If you work for a company that has 20 or more employees, your employer-provided insurance will be the primary, and Medicare will be your secondary. If you have paid Medicare tax for a long enough period, then there are no premiums for Medicare Part A. In this scenario, it’s wise for an employee to sign up for Medicare Part A because it adds no additional cost to their monthly insurance.

Another thing to note is that if an employee is receiving Social Security Income (SSI), then they will be automatically enrolled in Medicare Part A. If an SSI recipient doesn’t sign up for Medicare Part A coverage in the first 24 months of payments, then the SSI payments will stop.

And if a person has medical coverage and prescription drug coverage from an employer with 20 or more employees, that is considered creditable coverage (see more on this below). This means that the worker won’t have to pay late penalties for enrolling Medicare Parts B and D later.

Since there is no premium for Medicare Part A, most people should enroll in it as soon as they’re eligible to do so. Medicare Part B does charge premiums. Therefore, if an employee can get their medical coverage from their employer at the same time as Medicare Part A, it can greatly reduce out-of-pocket costs. Since a person can have Medicare and employer coverage at the same time, this is often the best financial scenario to do it under.

Understanding Creditable Coverage

Creditable coverage can be an important cost savings for many employees if they qualify for it. The size of the employer determines this.

In cases where the employee works for a company with 20 or more workers, employer insurance is “creditable”. This means if the employee’s healthcare coverage through the company is at least as good as Medicare coverage it may be considered “creditable coverage”. The beneficiary can continue to healthcare coverage through their employer if it is creditable and avoid higher payments if they sign up later for the Medicare.

If the company is smaller than that (fewer than 20 employees), the coverage will not be creditable. Late enrollment penalties can apply if a person enrolls in Medicare, but does not have creditable coverage and delays enrollment in Parts B and D. If a person leaves work and leaves their employer provided group coverage, the carrier will send that person a letter that provides proof of creditable coverage to Medicare (thus avoiding late penalties).

Another scenario that may occur is if a person retires, begins receiving Medicare, and then later goes back to work and starts receiving group medical coverage again. In this instance, Medicare can be paused for a period until the worker retires again. When Medicare Part B is paused, the worker has creditable coverage again and will incur no penalties later when reenrolling in Part B.

Which Entity Pays First: Medicare or Private Insurance?

Medicare becomes an employee’s primary insurance if they work for a company with fewer than 20 employees. If the company has more than 20 employees, their group coverage is their primary insurance. Whichever one is the primary insurance pays first, and secondary pays second.

In companies with fewer than 20 employees, it can be beneficial to enroll in both Medicare Parts A and B, even if the worker has small group insurance. The employee will incur costs for the Medicare Part B premiums, but if they do not enroll in Medicare once they are eligible, there are scenarios where a small group plan can (and will) refuse to pay for insurance claims. Being enrolled in Medicare Part B for employees in smaller companies is a great way to cover any gaps in their insurance. And once again, insurance from smaller companies is not creditable coverage; not enrolling in Medicare Part B would therefore incur late penalties.

Can an Employer Cover Medicare Premiums?

If an employee has both Medicare and employer-provided insurance, it is a violation of federal law for the employer to pay even a portion of the worker’s Medicare. One exception to this law is something called a “105 Reimbursement Plan.”

One of the most common 105 plans is something called a Health Reimbursement Account (HRA). Under this plan, money is deducted from the worker’s salary to pay for individual insurance policies. Since this is pre-tax money, the payments for Medicare Part B are eligible for tax-free reimbursements. An HRA is one of the few ways that an employer can legally pay for an employee’s Medicare Part B premiums.

Employer Insurance and Medicare Part D (Prescription Drug Coverage)

Enrolling in Medicare Part D can be delayed without penalty if an employer provides prescription drug coverage, so long as the employer has 20 or more workers. The rules for Part D are therefore similar to Medicare Part B. Medicare Part D and employer coverage that provides prescriptions are not really compatible. The coverages simply don’t work together.

Figuring out the combination of Medicare Parts and private insurance that are the most cost efficient for the employee is an important part of the decision process. Workers should compare their premiums for their group plan to the cost of Medicare, a Medigap plan and Part D in total. In many instances, Medicare insurance is more cost efficient than a combination of private insurance and Medicare. However, for some employees who are eligible for Medicare and who want to continue working, the combination of private insurance and Medicare will work best.

Medicare Part B and Retirement

Sometimes an employer will allow a worker to remain on their group coverage plan after they become a retiree. Even though that scenario might have counted as creditable coverage for Medicare Part B previously, the exception does not apply once a worker retires. Retirees staying on plans like this should enroll in Part B to avoid the late penalties.

After a worker retires, Medicare Part B becomes the primary insurance and the employer provided plan becomes secondary. Because of this distinction, it’s often more beneficial for an employee to drop their employer coverage and enroll in Medicare for all their coverage needs.

One final thing to note is that if a worker does not retire at 65, the employer cannot drop them from group insurance to try to force them to enroll in Medicare. Enrolling in Medicare is a decision that rests solely with the worker, and the employer is bound to abide by that decision.

Medicare Enrollment Considerations When Employed

Consider the following points and reference the Medicare Enrollment chart below.

• What are the Penalties for not Signing up on Time?
  Failure to sign up for Medicare within the enrollment window detailed previously may result in a 10% surcharge on premiums for each 12-month period of what the individual was eligible for but did not enroll. For example, if you were eligible and were not enrolled for 28 months your premium penalty would be increased by 20% (10% for each 12-month period) above the standard premium amount. Medicare bases the penalty only on 12-month periods and not on a more exacting monthly period. Once enrolled the beneficiary will have to pay the penalty-increased premium for as long as that person is on Medicare. There can be exceptions for disabled individuals who were paying premium penalties before the age of 65. Once they achieve that 65-age threshold, they are no longer required to pay the penalty.
  However, there usually isn’t a financial penalty for late enrollment in Medicare Part A as it is typically available at no cost.
• Is It Logical to Enroll in Medicare Part A Within the Enrollment Window if Already Covered?
  Indeed, if you already have healthcare insurance, it is likely in your interest to enroll in Medicare Part A within the enrollment period. Enrolling during this window of opportunity does not cost a penny.
  Furthermore, enrollment sets the stage for Medicare to function as a secondary form of insurance, meaning it has the potential to cover the cost of healthcare services in the event that your main form of insurance is not applicable.
• Are There any Exceptions to the Logic of Enrolling in Medicare When Already Covered?
  Yes. If you are currently contributing some of your earnings to a health savings account and would like to continue doing so, there is an exception to the logic outlined above. Enrollees in Medicare are not permitted to contribute money to a health savings account. In fact, if you have coverage through your employer’s high-deductible health savings account qualified plan, you cannot contribute to the health savings account.
• What is the Medicare Special Enrollment Period?
  If you work for an employer with a minimum of 20 employees and still employed when covered by the employer’s healthcare plan at the age of 65, it is possible to delay Medicare enrollment. If you are in such a situation, you will have an 8-month period of special enrollment in which you can sign up for coverage through Medicare if your employer halts healthcare coverage or leave your position with the company. The special enrollment period for Medicare commences after departing the employer or the month during which the group healthcare insurance comes to an end. The event that occurs first triggers the special enrollment period.
• What About Those Who Enroll in Social Security Before Turning 65?
  If you proactively enroll in the Social Security program prior to turning 65, you should be aware that doing so will automatically enroll you in Medicare Part A and Medicare Part B. The problem lies in the potential for workers aged 65 and older who are still covered by their employer’s healthcare insurance to end up paying for two plans. If you are in such a situation, it is in your interest to discuss the issue with your employer’s Human Resources department to ensure the coverage and timing between the company’s coverage and Medicare is worked out.

Medicare Enrollment Period Chart

The chart below provides the full scope of Medicare-related enrollment periods which includes Original Medicare and enrollment periods relating to Medicare Part C (Advantage), Medicare Part D (Prescription Drugs), etc.

When in Doubt, do the Math

If you are still on the fence as to whether it is better to stay on your employer’s healthcare plan at the age of 65 or enroll in Medicare, crunch the numbers. Determine exactly what you pay for group health coverage, compare that coverage’s cost and benefits to those of Medicare and move forward appropriately. Be sure to account for coinsurance, deductibles, premiums, copays and all other costs when determining which is the better option. Seniors still working should also consider the fact that Medicare only provides comprehensive coverage through the Part D drug plan that complements Medicare Part A and B.

Sources:

1. Medicare Enrollment Periods, Medicare.