Generally, Medicare eligibility begins at age 65 (or younger for those with disabilities). However, what happens if you turn 65 and are still employed? Do you need to sign up for Medicare if you are enrolled in an employer health coverage plan?
This article explains your choices.
What You Need to Know about Medicare and Employer Health Plans
- Understanding the Parts of Medicare
- How Employer Small Group Coverage Impacts Medicare
- How Employer Large Group Coverage Impacts Medicare
- Important Notes about Enrolling in Medicare
- A Word on Medicare Advantage Plans
Understanding the Parts of Medicare
Part A – Hospital Coverage
Medicare Part A is premium-free as long as you have paid Social Security taxes for at least 40 quarters. Suppose you are collecting Social Security at least four months before you turn 65. In that case, you are automatically enrolled in Part A. If you are not collecting Social Security and you qualify, you should usually apply for Part A right away.
Part B – Outpatient Coverage
In 2021, the basic premium is about $148.50/month. This is adjusted upward in a tiered manner if your modified adjusted gross income is over $88,000 (filing single) or $176,000 (filing jointly).
Part D – Prescription Drug Coverage
Prescription Drug Plans are purchased through private insurers but regulated by Medicare. The average cost of a Part D Prescription Drug Plan is about $30/month but varies widely depending on the drugs you take and the provider you choose.
Medicare Supplemental Plans (Medigap)
Medigap plans are purchased through private insurers but regulated by Medicare. These plans fill in gaps that may occur in Part A and Part B coverage. There are several standard options for this coverage, which vary in how complete the coverage is, and therefore in the premium amount.
How Employer Small Group Coverage Impacts Medicare
If you turn 65 and still have health care plan coverage through an employer with less than 20 employees, Medicare will become your primary insurance. This means your Medicare plan is billed first, and your employer’s plan is billed second.
In this case, it is recommended that you enroll in both Parts A and B because your employer plan may refuse to pay your claims if you do not have Medicare as your primary insurance.
Your choices are as follows:
- Sign up for Medicare Parts A and B, but not Part D and Medigap, and drop the employer plan. This may help you save on the premium you are paying for the employer plan, though your coverage will be less complete than if you kept the employer plan as secondary coverage or enrolled in Part D and Medigap.
- Sign up for Medicare and keep the employer plan. In this scenario, the employer plan is used as secondary coverage.
- Drop the employer plan and purchase Part D and Medigap plans to complement your coverage, in addition to Parts A and B. The advantage of choosing this option will depend on the costs and benefits of each plan.
How Employer Large Group Coverage Impacts Medicare
If you turn 65 and still have health care plan coverage through an employer with 20 or more employees, then the employer plan will become your primary insurance. This means your employer plan will be billed first, and your Medicare plan will be billed second.
Your choices are as follows:
- Keep your employer plan and enroll in Medicare Part A only. This is appropriate when your current plan has cost-effective outpatient and prescription drug coverage. You will not pay a Part B premium penalty if you delay applying for it until after age 65, as long as you have “credible” employer coverage in the meantime. You can then apply for the other parts of Medicare when you no longer have an employer-sponsored medical plan.
- Drop your employer plan and enroll in Medicare Parts A, B, and D, plus a Medigap policy. This can provide comprehensive medical coverage. To be sure it’s the right option for you, you’ll need to do some research. Compare both your Medicare & Medigap premiums with your employer coverage costs that are deducted from payroll. Analyze the features of each plan. Consider the costs of your medications in addition to any deductibles and copays. Knowing these costs and benefits will help you decide which option is the most cost-effective for you.
As you can see, it’s not always an easy choice as to whether to stay with your current large group employer plan or switch to Medicare when you turn age 65. We recommend speaking with a financial planner or insurance specialist who can guide you through the various options.
A Few Important Notes about Enrolling in Medicare
- Health Savings Accounts are a common feature of employer-sponsored health plans. However, it’s important to note that you can no longer contribute to a Health Savings Account once you have enrolled in any part of Medicare. You can, however, use the monies that you have already contributed. Here is additional information to help you decide if health savings accounts are right for you.
- If you are analyzing costs for you and your spouse, compare the employer plan’s cost for both of you to the total cost of Medicare for you and your spouse.
A Word on Medicare Advantage Plans
This summary is based on “Original Medicare.” When applying for Medicare, you also have the option of enrolling in a Medicare Advantage plan, which may combine the features of Parts B, D, and Medigap. In general, Medicare Advantage Plans tend to have lower premiums than original Medicare, but the plan could end up with a higher total cost depending on your medical needs. They may also limit your choice of doctors to those within their network, have higher fees for out-of-network physicians, and may require a referral to use a specialist. Therefore, the choice between Original Medicare and Medicare Advantage should be analyzed carefully for each individual.
Here is additional information to help you decide if you should consider a Medicare Advantage Plan.
Making the right Medicare choices requires planning and research to ensure you receive the most effective and cost-efficient coverage. This article outlines many of the facts you need to consider to make your choice, but everyone’s situation is slightly different. Feel free to reach out to your financial advisor if you would like some additional assistance.