More and more people over 65 years old are continuing to work. Why? Well it varies from person to person, but by in large, some common reasons include:
One issue this trend raises is whether or not you should enroll in Medicare coverage while still working at age 65 or older.1 As with many issues of this nature, the answer depends on several factors.
If you are covered by an employer plan, either as an employee or the spouse of an employee, and the employer has 20 or more employees, then you generally have the option to stay with that coverage, opt out and take Medicare, or be covered by both Medicare and the employer health plan.
If your employer has less than 20 employees then Medicare is generally primary while their plan coverage is generally secondary.
If you are covered by a plan via an employer with 20 or more employees, either as an employee or via spousal coverage, this coverage will generally be primary, allowing you to delay enrolling in Medicare Part B coverage until the employer coverage ceases (generally due to you or your spouse leaving that employer).
If you feel that Medicare is a better option for you versus the employer coverage, you are certainly free to drop that coverage and enroll in Medicare.
If you are working and waiting to enroll in Medicare coverage after leaving that employer, you will need to be careful concerning HSA contributions.
Once you are enrolled in any part of Medicare, you are not allowed to contribute to an HSA. This includes Part A, which many people enroll in at age 65 even if they are not yet enrolled in Part B. Part A enrollment is common when enrolling in Social Security. When applying for Social Security after age 65, your associated Medicare Part A coverage may be backdated by up to six months.
To avoid any penalties that you might incur, it is a good idea to stop HSA contributions six months before applying for Social Security/Medicare (or before you turn 65). Not only are contributions from employees not allowed once you are on any part of Medicare, but employer contributions are also prohibited.2
Note that any HSA balance that you have accumulated over the years can still be used to cover eligible medical expenses into retirement. Additionally, some or all of your HSA balance can also be withdrawn in the same fashion as a traditional IRA.
COBRA is health insurance coverage that you can purchase when leaving an employer. It allows you to continue the employer’s coverage for a period of time, generally at a higher cost.
If you are covered by COBRA from a former employer or a spouse’s former employer prior to age 65, this coverage will end when you reach age 65 and you will need to enroll in Medicare coverage.3 Medicare is always considered primary versus COBRA. You will need to enroll during your initial enrollment period, which starts three months before the month of your 65th birthday and ends three months after the month of your 65th birthday.
If you are working and leave a job after age 65, the interaction between COBRA and Medicare can get a bit confusing. While you can delay enrolling in Medicare after age 65 if you are covered by a current employer, or via a spouse’s current employer, this does not apply to COBRA coverage after age 65.
If you leave your employer with 20 or more employees and therefore lose their medical coverage (or the coverage from a spouse’s employment) after age 65, you qualify for a special enrollment period. This period lasts up to eight months after your eligible employer health insurance coverage ends. If you fail to enroll in Medicare Parts B and a Part D prescription drug plan (or a Medicare Advantage plan) prior to the end of this period, you might incur a late enrollment penalty. In some cases the Part D penalty can be permanent.
While you can keep your COBRA coverage in place if you still have eligibility, it will be secondary to Medicare. COBRA premiums are generally quite high, so you might consider looking at other alternatives for secondary coverage, such as a Medigap policy if you are taking Original Medicare (Parts A and B versus a Part C Advantage plan).
The rules surrounding prescription drug coverage are a bit different. If your drug coverage under COBRA or some type of retiree drug coverage is as good as the coverage under a Part D Medicare drug plan, then the coverage is considered to be “creditable.” As long as you have creditable drug coverage, you don’t need to enroll in a Medicare Part D plan or have drug coverage via a Medicare Advantage Plan.
If you are not sure, it is a good idea to inquire as to your prescription drug plan provider if the plan meets the criteria of being creditable coverage for Medicare.
If you are Medicare eligible and you lose your creditable drug coverage, you will then have 62 days to enroll in Part D or an Advantage plan offering Part D coverage without incurring a penalty. Note the late penalty for Part D coverage is a permanent one, this will always be added to the normal cost of the Part D coverage.4
Medigap plans serve as supplemental coverage to those enrolled in Original Medicare. They are not applicable for those enrolled in a Medicare Advantage Plan. Medigap generally pays the 20 percent of costs not covered by Medicare Part B.
In addition to Medigap, there are other options to cover this 20 percent, including retiree medical plans for an employer, Medicaid coverage and COBRA.
However, the best option for those enrolled in Original Medicare is often a Medigap plan sold by a private insurer in your state. Medigap plans offer predictable coverage that can help reduce your net out-of-pocket costs while covered by Original Medicare.
If you enroll in Medicare Part B during your initial enrollment period, once you’ve reached age 65 and are enrolled in Part B, you have a six-month open enrollment period during which Medigap issuers must sell you a policy at the best rate available—regardless of any health issues that you might have.
If you are covered by Medicare and have any type of employer coverage—or even COBRA as your secondary coverage with Medicare—there is a 63 day guaranteed issue for Medigap starting when you lose that other coverage. Again, Medigap issuers cannot deny coverage or charge extra based on your health situation during this period.
Failing to purchase a Medigap policy during one of the guaranteed issue periods can result in being charged a higher premium, or being denied coverage altogether if you have health issues. Note that those who choose to go with a Medicare Advantage plan versus Original Medicare when first eligible may face similar issues with Medigap coverage should they decide later on to change to Original Medicare.
Medicare and related coverages can be complicated on their own. For those who are working and taking Medicare or looking to do so, there are a number of additional issues to be considered.
It's important to be conscious of enrollment deadlines and any restrictions that might apply to your situation.