Tips
for Switching to Medicare
The hand-off from employer health insurance to Medicare
can be one of the trickiest challenges you will face in managing your
retirement. The rules are full of pitfalls that can cost you thousands of
dollars in unnecessary premiums or lead to a risky gap in coverage. Here are
answers to questions that often come up about the work-to-Medicare transition:
Is the Medicare enrollment
process automatic? - Only if you
have already claimed Social Security benefits by the time you turn 65, which is
the Medicare eligibility age. If not, Medicare requires you to sign up in a
seven-month window before and after your 65th birthday, unless you have
employer coverage or coverage through your spouse. Failing to sign up when
required is costly. Monthly Part B premiums, which cover doctor visits and
medical supplies, jump 10%–over your lifetime–for each full 12-month period
that you should have been enrolled. Penalties also are applied for late
enrollment in Part D (prescription drugs). If you retire after 65, you can take
advantage of an eight-month special enrollment period that begins the month
after employment ends.
Should you enroll in Medicare
even if you are offered COBRA health insurance when you leave your job? - Yes. Although you might need COBRA to cover a spouse
or dependent child, Medicare must be your primary insurance coverage once you
are over age 65. Besides leading to penalties, missing the special enrollment
window could mean going with nothing but COBRA until the next enrollment period,
providing limited coverage to retirees for as long as a year.
What if you are still working
when you turn 65? - If your
employer has fewer than 20 insurance-eligible workers, Medicare will be your
primary coverage, so go ahead and enroll. You can stick with your employer’s
coverage and forestall Medicare enrollment if your employer has 20 or more
insurance-eligible workers. The insurance must be similar to Medicare benefits
as measured by a set of standards set by the program. You also could enroll in Medicare,
which would provide secondary coverage to fill gaps in your employer’s plan.
One caveat: Do not enroll if you contribute to a Health Savings Account (HSA)
linked to a high-deductible employer plan. You are prohibited from making
further contributions to the HSA once enrolled in Medicare.
What if you want to execute a
file-and-suspend strategy for Social Security? Could you contribute to an HSA
in that situation? - No. Claiming
Social Security benefits automatically triggers enrollment in Medicare Part A,
which covers hospital and nursing home stays. That would remain true if you
file and suspend your benefits while still working and participating in a
high-deductible employer health insurance plan.
Do you sign up for Medicare when
you retire if your former employer provides a retiree health benefit? - Even if your former employer offers a retiree health
benefit, it is important to sign up for Medicare at age 65 to avoid penalties
and coverage gaps. Employer-provided benefits usually provide a secondary layer
of coverage, often covering co-pays or providing a drug benefit. The key to
coordinating the two insurance plans is to understand who pays first. You
should compare the cost of retiree coverage with what is available on the open
Medicare market. There is little point in holding on to retiree coverage when
it is not the best value for you. This is especially true for supplemental
plans that cap out-of-pocket costs, either Medigap or Medicare Advantage.
If you need additonal information please let me know.
Citations
Thanks,
Cory Payne
Beehive Insurance Retirement Planning Services
302 West 5400 South #101
Murray, UT 84107
801-685-6860 Office
801-685-2899 Fax
