It’s more common than ever before for people to
work well past age 65, the traditional retirement age up until recently. This
is largely because we live in a digital world where careers often require less
manual labor.
So, as individuals approach Medicare age, they
often begin to wonder what they should do about Medicare while they are still
working. Medicare can coordinate with group health insurance from your
employer, but there are some rules about what makes Medicare primary or
secondary.
Let’s look at how the coordination of benefits
for Medicare works so that you will know what to expect if you decide to work
past age 65 yourself.
Large Employer Coverage
If you work for a large employer with more than
20 employees (or your spouse does), you can choose to either keep that coverage
and have that employer coverage
coordinate with Medicare or leave that coverage to elect
Medicare instead and add a supplement and some drug coverage.
When you have creditable group health coverage
from a large employer, that group coverage is primary, and Medicare becomes
secondary. In this scenario, most beneficiaries will enroll in just Medicare
Part A.
After all, Part A costs nothing for most people
when they enroll in Medicare. All their working lives they have already paid in
taxes toward these future hospital benefits.
These taxes do not, however, cover Medicare Part
B outpatient coverage or Medicare Part D drug coverage. Both of these parts
will have monthly premiums that beneficiaries will pay for this coverage for as
long as they are enrolled.
In 2019, Medicare Part B carries a standard base
premium of $135.50/month, and this is what most beneficiaries pay. However,
people with high incomes can end up paying and Income-Related Monthly
Adjustment Amount. Depending on your income, this could mean that Part B costs
considerably more.
Since their group health coverage already
includes outpatient and drug benefits, it makes sense for many to delay
enrollment into Parts B and D until later on when they retire. This way they
aren’t paying those monthly premiums for that extra coverage that may be
unnecessary.
There is also no penalty for delaying enrollment
because they have proof of creditable health coverage for the years that they
decided to delay signing up for Parts B and D.
One exception would be if the employee is
contributing money into a health savings account. These contributions are
illegal if you have any other form of health insurance, including Medicare. So,
if you plan to keep contributing, then you would not enroll in any part of
Medicare.
Small Employer Coverage
When working for a small employer with less than
20 employees, the opposite is true. Medicare is primary and the group coverage
becomes secondary. In this circumstance, you must enroll in both parts of
Original Medicare during your Initial Enrollment Period, which begins 3 months
before the month in which you turn 65. If you don’t, not only will you pay for
all your outpatient benefits on your own, but you will also face a late
enrollment penalty later on. Failing to enroll in Medicare during your Initial
Enrollment Period when you don’t have creditable employer group coverage from a
large employer can result in you incurring a penalty of 10% per year for every
year that you waited to enroll.
You can, however, delay enrollment into Part D
as long as the drug coverage in the small group employer health plan is as good
as Medicare Part D. Later on when you retire, you will have a Special Election
Period to enroll in Part D with no penalty.
Because small employer group health plans can
often be quite expensive for the employee, you may find that leaving that
employer coverage and electing supplemental coverage instead is cheaper for
you. It’s a good idea to work with a Medicare insurance broker who can run
quotes for you and help you compare the two options. You can then elect
whichever one is the most cost effective for you at the time.
It can be a little tricky to skirt the penalties
and enroll in the right part at the right time, but if you follow the
guidelines we’ve covered in this article, you should end up in good shape.
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