Still Working? Wrong Medicare Choice Could Cost You

by Nancy Metcalf Health Writer

The days of retiring at age 65 and automatically transitioning to Medicare are fast receding. Today nearly one in five seniors is still in the workforce. If you plan to work past age 65, you have some homework to do on when to enroll in Medicare because there could be serious financial consequences if you get it wrong. Here’s what you need to know.

1. If you work at a company with 20 or more employees, you can stay on its health plan and put off Medicare enrollment until you retire.

It’s against the law for employers of this size to end or change your coverage just because you turn 65. Even if you do enroll in Medicare, your employer plan will pay your health expenses first, with Medicare as a secondary backup.

You can go ahead and enroll anyway in Part A, the part of Medicare that covers hospital care, because for most people it’s free. But it’s probably not worth it to enroll in Medicare Part B, which mainly covers outpatient care, because you’ll pay a monthly premium for it on top of whatever you’re paying for your company plan.

If are still contributing to a Health Savings Account to go with your high-deductible employer plan and want to continue to do so, don’t enroll in Medicare Part A until you retire. That's because once you do, you can’t make additional HSA contributions.

2. If you work at a company with 19 or fewer employees, in almost all cases enroll in Medicare Parts A and B right away.

The law is different for small employers. Their health plans are considered “secondary” to Medicare, meaning they basically function as supplemental plans, paying only the portion of your expenses that Medicare doesn’t cover.

If you don’t sign up for Medicare and your company health insurer figures this out, they can refuse to pay the medical expenses that Medicare should have covered—or even demand that you refund benefits that they already paid before they found out.

It’s important to verify with whoever is in charge of employee benefits at your company that it truly meets this definition of “small.” It could be a small outpost of a much larger company, or part of something called a multi-employer plan. In both of these situations, the rules for larger employers would apply.

Also—this is complicated, remember?—small employers are allowed to designate their plans as primary for their over-65 employees if they want. Ask your benefits person about this, too.

3. Get on Medicare Parts A and B the minute you stop working.

When you do retire, you will probably be offered the option of continuing your workplace coverage by paying the whole premium through COBRA. Don’t even think about doing this. Here’s why. Once you cease “active employment” you have a Special Enrollment Period of exactly eight months to sign up for Parts A (if you haven’t done this already) and B. Medicare does not care if you have COBRA insurance from your old job; it will start the clock anyway. If you miss this Special Enrollment Period, you’ll have to wait until the next General Enrollment Period, which is a kind of purgatory for people who messed up their initial enrollment. It runs just once a year, from January through March, and coverage does not start until July. Depending on the time of year you realize your error, you could end up uninsured for many months.

Wait, it gets worse. If you don’t sign up for Medicare Part B within that eight-month window, you will be charged a lifetime [premium surcharge of 10 percent] for every year that you should have been on Part B but weren’t.

4. You have the option of putting all this off if you switch over to your still-working spouse’s plan.

But all the other rules still apply, such as the difference between small and large employers. And once your spouse also leaves the workforce, even if he or she hasn’t turned 65, your eight-month enrollment clock will start. Do the math first: An increasing number of health plans charge an arm and a leg to add a spouse, so Medicare may be your more affordable option.

Nancy Metcalf
Meet Our Writer
Nancy Metcalf

Nancy Metcalf is an award-winning independent journalist specializing in health topics. A senior writer and editor for Consumer Reports for more than 25 years, she is a nationally recognized expert on health insurance and health reform.