Healthcare costs are one of the biggest expenses incurred in retirement.1 For most retirees, Medicare is a primary source of health insurance to address those expenses.
Medicare eligibility for most people kicks in at age 65. If you're receiving Social Security or Railroad Retirement Board benefits at age 65, you will automatically be enrolled in Medicare Part A.2 If you aren't receiving Social Security or Railroad Retirement Board benefits, and therefore are not automatically enrolled at age 65, you will need to independently enroll in Medicare within the initial enrollment period, or you'll face penalties for not enrolling on time.
However, if you or your spouse are still working, the rules may be different.
Medicare parts
Before we get into how Medicare enrollment is different if you or your spouse are still working at 65, let’s go over what we mean when we refer to Medicare, because it has several different parts.3
Part A: This hospital insurance covers services like inpatient care in a hospital, skilled care in a nursing facility, hospice care, and home health care.
Part B: This medical insurance covers services like:
- Services provided by doctors and other healthcare providers
- Outpatient care
- Home health care
- Durable medical equipment, including items such as wheelchairs, walkers, and hospital beds
- Preventative services such as screenings, shots and vaccines, and annual wellness visits
Parts A and B are known as Original Medicare.
Part D: This prescription drug coverage is different from Part A or Part B because it involves joining a plan offered by a private insurance company as an addition to Original Medicare (Parts A and B).
Part C: Medicare Advantage is a bundled plan that is an alternative to Original Medicare, and includes the coverage from Parts A and B as well as Part D. Medicare Advantage plans are offered by Medicare-approved private insurers.
The normal initial enrollment period for Medicare is a seven-month window that includes the three months prior to your birth month, your birth month when you turn 65, and the following three months. If you were born in June, for example, your enrollment period would extend from March through September.
If you have coverage from an employer, or are covered under a plan through your spouse’s employer, you will generally have eight months to enroll in Parts A and B without penalty once your employer coverage (or coverage under a spouse’s employer) ends.
What’s different if you're working
If you or your spouse are still working at or past age 65, then your timing for Medicare enrollment might be different. In part, in depends on what kind of employer you or your spouse are working for.
Larger employers
If you or your spouse are working for an employer with 20 or more employees, you are exempt from having to enroll in Medicare Parts A and B during the initial enrollment period, as long as you have health insurance coverage through that employer.4
Employers of this size must offer you and your spouse the same benefits they offer to younger employees and their spouses. In this situation, your choices are:
- Wait to enroll in Medicare until you're no longer employed there, and stay on your employer’s plan in the meantime
- Decline the coverage from your employer and rely solely on Medicare
- Have both employer coverage and Medicare in force at the same time. Under this scenario, the employer coverage will always be primary. Depending on how extensive this coverage is, you may be wasting your money by paying the Medicare Part B premiums. Part A is free, so it might make sense to sign up for it, even if you're covered by an eligible employer’s plan.
For employers with 20 or more employees, it's up to their employees whether they want to use Medicare or the employer's health insurance.
Smaller employers and self-employed
If you work for an employer with fewer than 20 employees, or are covered by a spouse’s health insurance from an employer with fewer than 20 employees, then it’s up to the employer to decide if your primary insurance is provided by them or Medicare.4
Typically, in this case, the employer coverage would be secondary to Medicare. This means, assuming you’re Medicare eligible, you’ll need to enroll in Medicare Parts A and B, or a Medicare Advantage plan. But don’t just assume this is how it will work — confirm with your employer. In some cases, they may allow their health care coverage to be primary, even for employees or covered spouses who are over age 65.
COBRA or retiree health coverage
If you or your spouse have left an employer, you may be entitled to obtain health care coverage under COBRA. COBRA typically offers the same coverage as the regular employee health insurance coverage, only at a much higher premium.4
Unlike employer health coverage, however, COBRA does not exempt you from having to enroll in Medicare. If you lose your employee coverage after 65 (or if you are covered by COBRA and turn 65), you must enroll in Medicare within the appropriate enrollment window, or you could face penalties.
Most retiree health coverage from an employer works similarly. Often times, this coverage is offered as a bridge between employer coverage and Medicare eligibility for those retiring prior to age 65. It’s important to verify whether this coverage can be primary to Medicare, or if you are required to enroll in Medicare as your primary coverage at age 65.
Prescription drug coverage
If you are Medicare-eligible, you are required to have creditable prescription drug coverage. If you are covered under an employer’s plan, either directly or through your spouse, you should generally have met this requirement, although there are exceptions.4
However, if you or your spouse work for an employer with fewer than 20 employees, their drug coverage (which is typically secondary to Medicare) may or may not be creditable. You’ll need to check with your employer.
There are other situations where you may have prescription drug coverage that is considered creditable. These could include coverage through a union plan, TRICARE, individual coverage, a former employer’s plan, or other sources.
If you do not have creditable coverage, then you’ll need to enroll in Medicare Part D as part of your Medicare coverage, or face penalties that will permanently increase your cost for this coverage. Many Medicare Advantage plans offer this coverage as part of their policy.
HSAs and Medicare
HSAs (health savings accounts) are medical savings accounts that can be offered with high deductible health insurance plans. HSAs can offer many advantages, and an HSA can be used in retirement to cover a number of expenses not covered by Medicare or other insurance.4
Once you sign up for Medicare Parts A or B, you cannot contribute to an HSA, even if you’re still covered by your or a spouse’s employer’s plan.
These rules are generally retroactive for up to six months prior to Medicare Part A enrollment. HSA contributions made during this six-month period can lead to penalties that may become permanent, so it’s important to always coordinate the cessation of HSA contributions with Medicare Part A enrollment to avoid any penalties.
Conclusion
Medicare in and of itself can be very complex, but if you or a spouse are still working after 65, the rules are even more complex.
It's important to understand how any coverage you or a spouse use through an employer can interact with your Medicare enrollment requirements. Failure to meet the enrollment requirements can result in penalties, some of which will become a permanent added cost for you in retirement.
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