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65 and Still Working: What to do with Medicare?

Key Points
  • Even if you still have health insurance through your job at age 65, it's important to know how Medicare works with your employer plan.

  • Comparing your employer coverage and costs with Medicare is the first step in choosing between the two—or perhaps having both.

  • If you're married, be sure to consider how a switch to Medicare might impact your spouse's coverage.

Dear Carrie,

I'm planning to continue to work past age 65, and I'm trying to decide between sticking with my employer's health insurance and moving over to either original Medicare or Medicare Advantage. How do I decide? —A Reader
 

Dear Reader,

This is becoming a common quandary as more and more people decide to work past age 65. According to a 2016 Pew Research Center report, more Americans 65 and older are still working than at any time since the turn of the century. That could be seen as a positive since it feels like we're redefining aging. At the same time, having adequate health insurance is essential. So it's an important question—and the answer depends on your employer and your satisfaction with the coverage you have, as well as the relative cost and coverage provided by Medicare. As you go through the process of deciding, not only should you familiarize yourself with the different parts of Medicare—A, B, C and D—but also the pertinent Medicare regulations and deadlines.

For the record, if you’ve already filed for Social Security, you'll automatically be enrolled in Medicare Parts A and B when you turn 65. However, you have the option to opt out of Part B, which you may want to do if you (or your spouse) is covered by an employer plan.  If you haven’t filed for Social Security, your Initial Enrollment Period is three months before you turn 65 until three months after your 65th birthday. So you do have some decisions to make.

Medicare Part A—an easy choice

Medicare Part A provides hospital insurance. It covers in-patient hospital stays, care in a skilled nursing facility, hospice care and some home care. Most people benefit by enrolling in Medicare Part A at age 65, whether or not they continue to work. There are no premiums for most people, and enrolling now will help you avoid gaps in coverage down the road.

Medicare Part B—it depends on the size of your employer

Medicare Part B covers doctors' services, outpatient care, medical supplies and preventive services. The first consideration in deciding if you need Part B is how many employees work at your company.

  • If your company has 20 or more employees, your company would remain your primary insurer and you can delay enrolling in Part B without worrying about a late-enrollment penalty or lapse of coverage. When you leave your job, you then have eight months to sign up for Part B under a Special Enrollment Period.
  • If your company has fewer than 20 employees, it's a different story. In this case, Medicare is considered your primary insurer—whether you have enrolled in Medicare or not—and your company plan is the secondary insurer. This means that your employer plan won't pay for anything that's assumed to be covered by Medicare. If you don't sign up for Part B as soon as you're eligible, you may have to pay a penalty, and there could be a delay in coverage.

Medicare Part C (Medicare Advantage)—it's up to you

If you enroll in Medicare, you have the option to choose a Medicare Advantage plan as an alternative to original Medicare, which includes Medicare A and B. Medicare Advantage is a type of Medicare health plan offered by a private company that contracts with Medicare to provide all your Part A and B benefits. On the plus side, a Medicare Advantage plan also usually provides Part D (prescription drug) benefits as well as sometimes providing extras like vision and dental at a lower total cost. On the minus side, you generally have to choose doctors within a particular medical network and get a referral to see a specialist. Another caveat: in some cases, joining a Medicare Advantage plan could cause you to lose your employer plan. Be sure to check with your benefits administrator.

Medicare Part D—drug coverage has to be "creditable"

Part D offers prescription drug coverage. If your employer plan offers what Medicare calls "creditable" coverage, you may be able to delay enrolling in a Part D plan. Creditable means that your employer plan is as good as or better than the coverage provided by Medicare’s prescription drug benefit. If you don't have this type of coverage and don't enroll as soon as you're eligible, there's a late enrollment penalty if you go more than 63 days without prescription drug coverage.

Some important considerations before making your choice

If you work for a large company, the first step is to compare your employer coverage and costs with Medicare. Be sure to look carefully at premiums for Parts B and D (both have high-income premium surcharges) as well as the cost of a Medigap policy that would cover whatever Medicare doesn't if you’re selecting original Medicare (you won’t need and should not purchase Medigap if you choose Medicare Advantage). If you're happy with your current plan, you may well be better off staying with that and delaying Medicare enrollment until you retire.

Another thing to be aware of is that once you enroll in Medicare (even if it's just Part A), you’re no longer eligible to contribute to a health savings account (HSA). So, if you've been relying on your ability to contribute to your HSA to boost your pre-tax savings, that's possibly another reason to postpone Medicare if you have the choice. 

If you are still working at 65, you should request HSA contributions stop before Medicare enrollment. Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. In fact, to avoid an IRS penalty, stop contributions to an HSA between 1-7 months prior to enrolling in Medicare Part A or claiming Social Security (SS) benefits after age 65.

If you work for a small company, your Medicare enrollment choices are limited, but at least check to see if your prescription drug coverage is adequate. If not, then sign up for Parts A, B, and D as soon as you're eligible. You most likely won't need a Medigap policy under original Medicare, since your employer coverage will pick up costs not covered by Medicare. Check with your employer to see the impact of enrolling in Medicare Advantage.  

A word about spousal benefits

You don't say whether you're married, but if you or your spouse is covered by your employer plan, you'll have to consider what choices your spouse would have if you switch to Medicare. These may include COBRA, purchasing individual coverage in the private market, or through a government exchange at www.healthcare.gov.

To me it comes down to a cost/benefit analysis. Medicare.gov does a pretty good job of explaining different scenarios for those eligible for Medicare while still employed. I'd check that out as well as talk to your employer's benefits administrator.  For assistance on who pays for what when you have employer coverage and Medicare, contact the Medicare Benefits Coordination & Recovery Center (BCRC) at 1-855-798-2627.  You can also contact Medicare.gov/contacts or your State Health Insurance Assistance Program (SHIP) at www.shiptacenter.org for more help with questions on Medicare.


Have a personal finance question? Email us at  askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries,  contact Schwab.

 

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