In a perfect world, the day you turn 65, you retire, stop your work medical coverage, and start Medicare. While this is great in theory, most people do not live this lifestyle. According to the U.S. Bureau of Labor Statistics, 40% of people over age 55 are still working, with this number expected to increase. This number does not even account for the couples where only one spouse is working but both are still utilizing the work health insurance. A large amount of our clients continue working throughout their 60’s and even 70’s and 80’s and we take them through the process outlined below of signing up for Medicare no matter their situation.
You will be retired when you are 65:
First, let’s go over the easiest scenario. If you are not working when you turn 65, and you are not covered by your spouse’s work coverage, then signing up for Medicare is an easy decision. If you are already talking Social Security, you should automatically be enrolled in Part A and Part B. You then need to decide if you want to go with a Medicare Supplement and drug plan or with a Medicare Advantage plan, but be sure to make this decision carefully.
You are still working when you turn 65:
While Medicare is designed to start the month you turn 65, there are exceptions, especially if you are still working and have creditable coverage, which most work coverage is. If you have creditable coverage, you can postpone Medicare without any penalties. This allows you to not pay for Medicare while also paying for work coverage. It is important to note that COBRA is not creditable coverage – if you lose work coverage past age 65 you must sign up for Medicare within 8 months to avoid penalties!
Signing up for Medicare Part A, which covers hospital insurance, should be considered by working seniors. Part A is free for most people, as long as you or a spouse has worked for 10 years. This coverage works in conjunction with your work coverage, with Medicare being the second to pay. There is really no downside to taking Part A while you are still working, unless you are contributing to a health savings account, or HSA.
On the other hand, Medicare Part B, which covers doctors and outpatient services, is not free. There is a monthly premium as well as yearly deductible, which is why most people with work coverage are not going to want to sign up for this. Also, it is important to remember that once you start Part B, your Medicare Supplement Open Enrollment period begins for 6 months. This period allows you to apply for a Medicare Supplement without answering health questions. You only get this period once, and if you start Part B when you are working, you will have to answer health questions if you want to get a supplement when you retire.
If you are still working and already talking Social Security before you turn 65, you will automatically be enrolled in Part A and B the month you turn 65. You will need to contact Social Security to opt out of Part B. For Part A, your red, white, and blue card will come in the mail 3 months before your 65th birthday.
One exception to all this is if you work for a company with under 20 employees. For these companies, Medicare will become employee’s primary source of coverage once they turn 65. In this case, you should take the same advice we gave to people who are retired at 65 and sign up for full Medicare coverage to avoid any lapse in coverage or penalties.
There are really no advantages of having full Medicare coverage while under work coverage. Unless your work coverage is ineffective, you’ll be paying monthly premiums for Medicare with little or no return. These premiums can be even higher than normal when working, due to IRMAA premium surcharges. It can be beneficial to compare the costs and benefits of both your work coverage and Medicare to see what makes the most sense. For a small amount of people, full Medicare actually is less expensive.
Once you decide to retire, you’ll have an 8-month Special Enrollment Period to sign up for Medicare before you are penalized. You can even get working on this a few months before you retire, especially if you know the exact month your work coverage is going to end.
Your spouse is still working when you turn 65:
If your spouse still has work coverage when you turn 65, you have a few options. The first is just to stay on your spouse’s work coverage and delay taking full Medicare. In this case, you would follow the same instructions we gave above for people who are still working when they turn 65.
If you spouse is still working but their work coverage does not cover you, or it is cheaper to start Medicare instead of staying on this coverage, you should follow the advice above for people who are retired when they turn 65. Your Initial Enrollment Period starts three months before the month you turn 65 and lasts three months after your birth month. During this period, you can sign up for Medicare. You should also look into a Medicare Supplement Plan as well as a Part D Drug plan.
Medicare enrollment comes with a lot of deadlines and timelines paired with penalties and taxes if you miss these. If you are not sure of what decisions to make, consult a professional. It could save you thousands of dollars in the long run.
