PUBLISHED MON, AUG 12 2019 3:33
PM EDT Sarah O’Brien@SARAHTGOBRIEN
KEY POINTS
·
By 2026, about 30% of individuals ages 65 through 74 — and about
11% of the 75-and-over crowd — are expected to be in the labor market.
·
If you are going back to work and your employer’s health-care
plan qualifies as acceptable primary coverage, you are permitted to drop
Medicare and re-enroll down the road.
·
Just because you can, it doesn’t mean you should.
For some retirees who are
on Medicare, the workforce ends up beckoning them back — and one result can be
employer-sponsored health insurance.
While that coverage could
mean you (and your spouse) are able to drop parts of Medicare and pick them
back up again down the road without paying penalties, the move might come with
snags.
“The process is
straightforward, but there are a few consequences people should be aware of,”
said Medicare expert Patricia Barry, author of “Medicare for Dummies.”
While the current number of
retirees who re-enter the workforce is hard to come by, roughly 26.8% of people
age 65 through 74 are in the labor market, according to the latest available
data from the Bureau of Labor Statistics. That’s projected to reach 30.2% by
2026. For the 75-and-older crowd, the share is 8.4% and expected to grow to
10.8% by 2026.
Most people sign up for
Medicare when first eligible at age 65, either because they no longer are
working or don’t have qualifying coverage through a job. Roughly 52.2 million
Americans age 65 or older are on Medicare. Another 8 million or so
beneficiaries are younger people with disabilities.
Most retirees pay no
premiums for Medicare Part A, which provides hospital coverage. Part B, which
covers outpatient care, comes with a standard monthly premium of $135.50 for
2019 (although higher earners pay more). Part D, which provides prescription
drug coverage, has a 2019 base premium of about $33. Higher earners pay more
for that coverage as well.
Some people choose to go
with an Advantage Plan and receive their Medicare Parts A, B and D benefits
(and often extras like dental and vision) through that option. Those plans also
often come with a premium.
Assuming you are receiving
Part A for free, there are two things to be aware of that could put a snag in
your plan in your plans to drop Medicare and switch to a employer plan. (And
remember, Medicare rules are different for small firms.)
For starters, if a health
savings account, or HSA, comes with the employer’s group coverage — in other
words, it’s a “high-deductible” health plan — you cannot make contributions to
an HSA while on Medicare, even if only Part A.
For 2019, a high-deductible
health plan is one with a deductible of at least $1,350 for an individual and
$2,700 for a family, with maximum annual out-of-pocket costs (not counting
premiums) of no more than $6,750 and $13,500, respectively. That excludes
out-of-network costs.
HSAs come with a triple tax
benefit, however: Contributions are tax-deductible, earnings are tax-free and
withdrawals also are untaxed as long as they are used to cover qualified
medical expenses. Annual contributions to HSAs for 2019 are limited to $3,500
for someone with individual coverage and $7,000 for family coverage. People age
55 or older can put an extra $1,000 in per year.
If you think that dropping
Part A so you could contribute to an HSA might be an option, be aware that
going that route would mean having to repay the government for any medical
services you received under Medicare, Barry said. And if you were getting
Social Security benefits, you’d need to give back that money, as well.
Additionally, if you use a
supplemental policy — also called Medigap — alongside Parts A and B, you’d have
to drop that coverage. That’s even if you just opt out of Part B.
And, Barry said, it might
be difficult to get another policy down the road.
When you first sign up for
Medicare, you get six months to buy a Medigap policy without the insurer
charging you more or denying coverage due to your health status or pre-existing
conditions. So if you drop it and re-apply later, the insurer can consider your
health when deciding whether to cover you or charge you more (unless you live
in a state that offers guaranteed coverage).
Separately, people who must
pay premiums for Part A cannot voluntarily disenroll from Part B without also
disenrolling from Part A, Barry said.
Meanwhile, if you were to
switch to your employer’s plan, be aware that there are rules for re-enrolling
in Medicare at some point.
As long as your
employer-sponsored health care is considered qualifying coverage by the
government, you get an eight-month window to re-enroll in Part B when you stop
work or lose the group coverage.
“If you miss that eight
months, you have to wait for general enrollment, which is January through
March, and then the coverage isn’t effective until July,” said Elizabeth
Gavino, founder of Lewin & Gavino in New York and an independent broker and
general agent for Medicare plans.
If you somehow both miss
your eight-month window and go too long without acceptable coverage, you could
face a late-enrollment penalty: It’s 10% of the monthly Part B base premium for
each full year you should have been enrolled but were not.
If you’re going to enroll
in an Advantage Plan, that also can be done during your eight-month special
enrollment period.
If you’re going to stick
with basic Medicare (Parts A and B), you’d get two months to get a standalone
Part D prescription drug plan once workplace coverage ends. If you miss that
window, you could face a late-enrollment penalty. That amount is 1% of the national
base premium for each full month that you could have had coverage but didn’t.
Additionally, the Social
Security Administration will want to talk to you before you make the decision
to drop Medicare. While you can download the necessary form for voluntary disenrollment
from Part B, the agency requires either an in-person or
on-phone consultation with one of its officials while you fill out the form.
“They want to make sure the
person understands the consequences for dropping coverage,” Gavino said.
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