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Outside the Box: Do I need to enroll in Medicare if I’m still working at 65?

As we move toward retirement there are many questions as to how to proceed in different areas. When to claim your Social Security benefits is a key question. Another area that often elicits a number of questions and much confusion is Medicare. 

One question that is often asked is, do I need to enroll in Medicare if I am still working at age 65? The answer, like a lot of things in the financial planning realm is, it depends. 

The basics 

For those who are receiving their Social Security benefits at age 65, they will automatically be enrolled in Medicare. If you are not receiving Social Security benefits when you reach age 65, then you should enroll during the seven month enrollment window. This spans the three months prior to reaching age 65, the month you turn 65 and the three months after that. Failing to enroll in Medicare during this time period can result in penalties that in some cases take the form of permanently higher premiums. 

What if you are employed at age 65? 

If you are working at age 65 whether or not you are required to enroll in Medicare will depend on if you are covered by an employer’s health insurance plan directly, or through a spouse’s employer, and the size of that employer. 

Employers with fewer than 20 employees 

If you have health insurance coverage through your employer and there are fewer than 20 employees, then Medicare coverage will be primary in most cases and the employer’s coverage will be secondary. This also applies if your employer coverage is through your spouse’s employer. You will want to enroll in Medicare Parts A and B as soon as you are eligible to avoid any penalties.  

If the employer tells you that you do not need to enroll in Medicare at age 65, you will want to get confirmation of this in writing from the employer. 

Failing to enroll in Medicare on a timely basis could result in a gap in your medical coverage. 

The Medigap issue discussed below with coverage from larger employers does not apply if you take Part B while working and the employer has 20 or fewer employees. You will need to enroll in a Medigap plan within 63 days of insurance coverage from this employer ending to ensure protection from being rejected for an illness or pre-existing condition. 

Employers with 20 or more employees 

If you are covered by health insurance and your employer has 20 or more employees, the choice is yours rather than theirs as to whether their coverage will be primary at age 65. The same applies if this coverage is through your spouse’s employer. 

If you are covered by insurance through an employer with 20 or more employees, you have three main choices: 

Stay on the employer plan and delay enrolling in Medicare.

Decline the employer coverage and go 100% with Medicare coverage.

Have both coverages simultaneously. 

Some people choose to enroll in Medicare Part A, hospital coverage, even while covered by their employer’s plan since there is no premium. This can be a good idea as Part A might pick up some charges not covered by the employer coverage. However, if you are contributing to a health savings account (HSA) in conjunction with a high deductible health insurance, you will want to delay enrolling in Medicare as HSA contributions are not allowed once you enroll. 

You can also enroll in Medicare Part B if you choose, but again your employer coverage will be primary. You will want to have a firm handle on items not covered by your employer’s plan before enrolling in Part B as this portion of Medicare has a premium.

Another issue with enrolling in Part B if your employer coverage is primary lies with Medicare supplement Medigap. Normally you can purchase Medigap coverage within six months of enrolling in Part B without any risk of being denied coverage by one of the private insurers offering these policies for pre-existing health issues. Coverage from a larger employer does not extend this protected period for obtaining Medigap coverage. 

COBRA and other insurance 

If you have coverage through COBRA from a former employer or a spouse’s former employer, you must enroll in Medicare when eligible to avoid penalties and permanently higher premiums in some cases. Medicare will be primary in the case of COBRA coverage or retiree health insurance from an employer. These and other types of insurance coverage are secondary and can still be used to cover costs that Medicare may not pay for. In the case of COBRA, keep in mind that this type of coverage is usually quite expensive. 

Health savings accounts (HSAs) 

As mentioned above once you enroll in Medicare you can no longer contribute to an HSA. These accounts are an excellent way to save on a pretax basis for medical costs in retirement. If you find yourself in a position where you are covered by a high deductible health insurance plan via a large employer, it may behoove you to delay enrolling in Medicare until you leave that employer in order to continue contributions to the HSA. 

For those who are over age 65, Medicare Part A can be made retroactive for as long as six months. You will want to be sure to coordinate the beginning of your coverage with ending your HSA contributions to ensure you don’t incur any tax penalties from making HSA contributions while covered by Medicare. 

If you are working as you reach age 65 you will want to look at your insurance coverage through your employer or your spouse’s employer to determine whether you are required to enroll in Medicare. Healthcare costs are one of the biggest expenses for most retirees. According to Fidelity Investments in their latest study, the average 65-year old couple will spend $315,000 on healthcare costs in retirement. 

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