Turning 65 used to mean retirement for many Americans. Today, many people continue working well beyond 65—and that can make Medicare enrollment a little more confusing.
If you're approaching 65 and have health insurance through your employer, you’ve probably been getting mail (for months!) that state you must sign up or face dire lifetime penalties. Do you really need to sign up for Medicare even though you’re still working and have good coverage?
The answer is: maybe.
Whether you should enroll in Medicare at 65 depends largely on:
the type of health coverage you have
the size of your employer
whether you contribute to a Health Savings Account (HSA)
and finally, cost/benefit analysis.
First, Know Your Medicare Enrollment Window
For most people, Medicare eligibility begins at age 65. Your Initial Enrollment Period generally lasts seven months: the three months before the month you turn 65, your birthday month, and the three months afterward.
But being eligible for Medicare doesn't necessarily mean you have to enroll in every part of Medicare immediately.
If you or your spouse is still actively working and you have “creditable” employer-sponsored health coverage, you will be able to delay Medicare Part B without paying a late-enrollment penalty later.
The key words here are actively working. Retiree insurance and COBRA are treated differently.
If Your Employer Has 20 or More Employees
If you're 65 or older and have health coverage through you or your spouse's current employment, the size of the employer is important.
Generally, when the employer has 20 or more employees, the employer's group health plan pays first and Medicare pays second.
In this situation, many people choose to delay Medicare Part B while they remain covered by the employer's group health plan. This can make financial sense because Part B has a monthly premium. This is my typical recommendation.
What if My Employer Has Fewer Than 20 Employees?
If your employer has fewer than 20 employees, Medicare generally becomes the primary payer once you're eligible for Medicare at 65, while the employer plan pays second. Medicare advises people in this situation to check with their employer about enrolling in Part A and Part B when first eligible.
Failing to enroll could potentially leave you with unpaid medical expenses if your employer plan expects Medicare to pay first. I’ve known of someone in this situation, and his small-group employer plan refused to pay the first 80% of his claims, since he was supposed to be enrolled in Medicare. Yikes!
Should I Sign Up for Medicare Part A Anyway?
You may have heard that everyone should enroll in Medicare Part A at 65 because it's "free."
For most people, Part A does have a $0 monthly premium because they or their spouse worked and paid Medicare taxes for 40 calendar quarters (ten years of work history).
For someone with employer coverage, enrolling in premium-free Part A may provide additional hospital coverage. But there's one major reason you might not want to enroll immediately:
You Have a High Deductible Health Plan with a Health Savings Account (HSA)
Once you're enrolled in Medicare, you can no longer get the tax benefits of contributing to an HSA.
This rule deserves special attention because Medicare Part A can be retroactive for up to six months when someone enrolls after age 65. Because of this retroactive coverage, Medicare recommends that people who delay Medicare and continue contributing to an HSA generally stop HSA contributions six months before they retire or apply for Social Security or Medicare benefits.
If you have an HSA and plan to continue working after 65 and contributing to your HSA, coordinate your Medicare enrollment carefully with your employer, tax professional, or benefits adviser.
What About Medicare Part B?
Part B covers services such as doctor visits, outpatient care, preventive services, and certain medical equipment.
Unlike Part A, Part B has a monthly premium, which is one reason people with good employer insurance often consider delaying it.
If you're covered through your (or your spouse's) current employment, you may qualify for a Special Enrollment Period that allows you to enroll in Part B later without any late-enrollment penalty.
Once the employment or qualifying employer coverage ends, however, the clock starts ticking. Get busy, and fast!
Don't Confuse COBRA With Active Employer Coverage
This is one of the most important Medicare rules for people retiring after 65.
COBRA is not considered health coverage based on current employment for purposes of the Part B Special Enrollment Period.
In other words, taking COBRA doesn't normally allow you to postpone Medicare Part B enrollment until your COBRA coverage ends.
Waiting until the end of an 18-month COBRA period to think about Medicare could create serious problems. I’ve known of a local employer to offer COBRA as part of a retirement package to consumers over age 65, which created a mess.
What About Medicare Part D Prescription Drug Coverage?
You may also be able to postpone Medicare prescription drug coverage if your employer plan provides creditable prescription drug coverage.
"Creditable" means the drug coverage is expected to pay, on average, at least as much as standard Medicare drug coverage. Your employer or health plan should notify you whether its prescription coverage is creditable.
Keep those notices.
If you go 63 consecutive days or more after your Medicare Initial Enrollment Period without Medicare drug coverage or other creditable prescription drug coverage, you could face a Part D late-enrollment penalty when you eventually enroll.
What if I'm Covered Through My Spouse's Employer?
You don't necessarily have to be the employee.
If you're 65 or older and covered under a group health plan because your spouse is currently employed, you may also be able to delay Part B and use a Special Enrollment Period later.
Again, employer size and the specific rules of the employer plan matter, so verify the details with the employer's benefits administrator.
A Simple Medicare-at-65 Checklist for People Still Working
As your 65th birthday approaches, ask these questions:
Is my health insurance based on my or my spouse's current employment?
Does the employer have 20 or more employees?
Does the employer plan require me to enroll in Medicare at 65?
Is my prescription drug coverage considered creditable for Medicare Part D?
Am I contributing to an HSA?
When I eventually retire, when should my Medicare coverage begin?
Don't rely solely on what a coworker did when they turned 65. Two employees can have very different Medicare situations depending on their age, spouse's coverage, HSA participation, employer plan, retirement date, etc.
The Bottom Line
You don't necessarily have to enroll in all parts of Medicare simply because you turn 65 while you're still working.
If you have qualifying health insurance through your or your spouse's current employment with a larger employer, you will be able to delay Medicare Part B without a penalty. If you work for a smaller employer, Medicare may need to become your primary coverage at 65.
And if you have an HSA, enrolling in Medicare Part A—even though it may be premium-free—requires additional planning because Medicare enrollment affects your ability to make HSA contributions.
The safest approach is to review your options before you turn 65 rather than waiting until retirement. Ask your employer's benefits administrator how your current plan works with Medicare and confirm whether your prescription coverage is creditable.
A little planning can help you avoid coverage gaps, unnecessary premiums, tax problems, and Medicare late-enrollment penalties.
Please contact me if you need help or further clarification.
This article is for general educational purposes and isn't intended as tax, legal, or individualized insurance advice. Medicare rules and individual circumstances can vary.