By Grace S. Yung, CFP
If you’ll be turning 65 soon, you’re likely aware that you will be eligible for health insurance benefits through Medicare. But if you (or your partner or spouse) are still working for an employer that provides you with health insurance coverage, should you go ahead and sign up for Medicare or hang on to the health insurance you’ve already got? The good news is that you may actually be able to do both.
Because most people don’t pay a premium for Medicare Part A, there’s really no reason not to move forward with enrolling in this portion of Medicare coverage—even if you’re still gainfully employed and covered through an employer-sponsored benefit plan. Part A of Medicare covers hospitalization—which includes inpatient care in a hospital, as well as in some skilled-nursing and hospice facilities.
Medicare Part B is a different story, though. Part B of Medicare covers services like lab tests and doctor visits, as well as certain medical supplies such as wheelchairs and walkers that are considered necessary for treating a condition or a disease.
With this part of Medicare, most people are liable for a 10 percent penalty on their premium for each year that they delay their enrollment after they become eligible. However, the penalty won’t apply to those who remain enrolled in a health-insurance plan through their current employer.
Therefore, if you stay in your employer-sponsored benefit plan (or your partner or spouse’s plan), you won’t need to worry about the Medicare Part B penalty if you wait to enroll in this portion of Medicare until a later time—as long as you apply for Part B prior to the employer’s plan ending, and you don’t go more than 63 days without any health insurance coverage at all.
It is important to note that in some cases, an employer-sponsored health-insurance plan may require you to enroll in Medicare Part B as soon as you are eligible—so it is a good idea to inquire with your employee-benefits or human-resources department in order to be certain.
Also, if you work for a company that has 20 or fewer employees and you do enroll in Medicare Part B, then this would be considered your primary insurance coverage. In this case, Medicare Part B would pay first for healthcare services that you receive, and your employer-sponsored health insurance plan would pay for any unpaid balance after that.
How and When to Apply for Medicare Once You Retire
Once you have retired—and if you have not already enrolled in Medicare Part A and/or Part B—then you will need to do so during a Special Enrollment Period. This period will start after your employment ends or the group health insurance plan based on your current employment ends—whichever occurs first. Typically, an individual will not be liable for a late-enrollment penalty if they sign up for Medicare during a Special Enrollment Period.
If you haven’t already done so, you may also want to enroll in Medicare Part D coverage for prescription drugs. These plans are not offered through Medicare directly, but rather via insurance carriers and private companies that are approved by Medicare.
In most instances, you will be liable for a late-enrollment penalty if you don’t enroll in a Medicare Part D plan when you initially become eligible, and you have been without creditable prescription drug coverage for more than 63 continuous days. Creditable prescription drug coverage means coverage (usually from an employer or union plan) that would be expected to pay out, on average, at least as much as Medicare’s standard prescription drug coverage.
In order to apply for a Medicare Part D prescription drug plan, you can enroll through one of the various insurers that offers this coverage in your demographic area. More information about these plans can be found on Medicare’s website at medicare.gov.
Going with the Alternative—Medicare Advantage
Rather than enrolling in Medicare Parts A and B—which are referred to as Original Medicare—some people choose to instead receive their Medicare benefits through an alternative Medicare Advantage plan.
Medicare Advantage plans, also known as Medicare Part C, are also offered through private insurance carriers that are approved by Medicare. These plans are required to offer all of the same benefits that are provided by Medicare A and B, and they also provide additional coverage such as dental and vision.
There are a wide variety of Medicare Advantage plans to choose from. Some of these operate in an HMO (Health Maintenance Organization) or PPO (Preferred Provider Organization) format, meaning that participants are required to obtain a referral before seeing a specialist, and are charged less for seeing providers who are listed within a network.
There are also other, more specialized types of Medicare Advantage plans as well, including Special Needs Plans, Coordinated Care Plans, Medicare Medical Savings Account Plans, Cost Plans, and even Religious and Fraternal Benefit Society Plans.
In order to be eligible for Medicare Advantage, you need to be entitled to Medicare Part A and also be enrolled in Medicare Part B. You must also be sure that you live within the service area of the Medicare Advantage plan that you wish to enroll in.
It’s important to note, though, that Medicare Advantage is not the same thing as Medicare Supplement insurance, or “Medigap.” Medicare Supplement is a type of coverage that can be purchased by those who are enrolled in Original Medicare (Parts A and B) as a way to help in paying for some of Medicare’s out-of-pocket charges like deductibles and co-payments. In fact, if you own a Medicare Advantage plan, you are not eligible to purchase Medicare Supplement insurance.
The Bottom Line on Medicare Enrollment
Regardless of when you opt to enroll in Medicare, or which Medicare alternative you decide to go with, it’s important to remember that this is a health insurance program that you will likely have for many years—so be sure to research all of your options before choosing the one that works best for you.
You will also want to ensure that you coordinate your coverage as best you can with any other insurance that you may have, and that you avoid any potential penalties, as these can permanently increase the cost of your Medicare premiums going forward.
In addition, if you are married, you may want to check your Medicare eligibility—even if you don’t personally have enough work credits on your own. Another nice advantage of same-sex marriage is the fact that Medicare benefits can now be made available to non-working spouses. So it could be well worth checking into where you or your spouse stands—especially if you don’t have any other viable or affordable alternatives available.
Personal finance-related questions may be emailed to [email protected].
Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the 2014 September issue of Texas Monthly.