Everyone knows that Medicare provides heath care coverage for retired Americans over 65 years old. But, with more American’s working beyond age 65, there is plenty of confusion about how Medicare works if you are still employed and working at a job, especially if it provides health insurance.
Medicare is a health care program for American workers age 65 and older. Although it is often paired with Social Security, the programs are different. In fact, with modifications to the Social Security retirement age moving back full retirement benefits, there is now an age disconnect between the two programs. This can cause a financial issue if you aren’t thinking about Medicare when you turn 65 because you are still working a job and don’t need Medicare insurance because you have coverage at work.
Medicare Late Enrollment Penalty
Does it make sense to enroll in Medicare if you are still working when you turn 65?
When you turn 65, you must enroll in Medicare during your initial enrollment period to avoid paying a penalty when you enroll later. The penalty for late enrollment in Part A is an increase in your monthly premium of up to 10% for twice as many years as you did not enroll after your initial window. Your window is generally 3 months before and after you turn 65. If you do not sign up during your window, you can sign up between January 1 and March 31 each year.
For example, if you do not enroll when you turn 65, and then wait to enroll until you are 67, then you will pay a penalty for four years. That is two times the number of years you were late for enrollment.
The penalty for Medicare Part B late enrollment is forever, but the initial enrollment period may be different if you are still employed.
Medicare Part A While Working
Medicare Part A enrollment can be particularly confusing. As noted above, if you do not enroll during your initial enrollment window for Part A, you may be subject to a penalty of up to 10 percent on your monthly premiums for Part A coverage. However, most people do not have to pay a monthly premium for Medicare Part A. This is sometimes referred to as premium-free Part A Medicare. Obviously, a 10 percent penalty on a $0 premium payment is $0. (The exceptions to this are generally people who did not earn income that paid Medicare taxes, that is people who lived off of investment income.)
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What makes this tricky is that most people are eligible for premium-free Part A. If you qualify to draw Social Security and are over age 65, then chances are you get free coverage. No reason to not have additional free coverage.
Here is the catch, though. If you are not currently collecting Social Security, you are NOT automatically enrolled in Medicare Part A. You must enroll manually. Also, because premiums cannot be deducted from your Social Security check, you will need to make an auto-pay arrangement, or send in a check every month.
Since it is free, there is no reason not to enroll. Even if you have health care coverage through your employer, Part A may cover some things your other plan doesn’t.
You can apply for Medicare coverage online.
Medicare Part B While Still Working
Part A Medicare basically covers hospital care and nursing home care. For everything else that you are used to insurance covering, you need Medicare Part B.
Medicare Part B covers regular medical services such as doctor visits, preventative care, x-rays, blood tests, and so on.
The Medicare Part B penalties are worse than Part A penalties because they continue for the entire time you are enrolled in Medicare. In other words, they never expire or go away; you pay more forever. You don’t want to get stuck with this Medicare penalty.
Unlike Part A, Part B does have a monthly premium that almost everyone pays. So, if you are already covered by health insurance from your job, Medicare B may be an unnecessary expense. Fortunately, for people over 65 who are still working, and covered by group health insurance, there is a Special Enrollment Period to sign up for Part B (and Part A).
Your Medicare Part B Special Enrollment Period lasts for 8 months after your employment ends or your coverage ends, whichever comes first.
There is no Special Enrollment Period based on COBRA coverage.
- If your job ends, you have 8 months to enroll.
- If your employer stops offering group coverage, but you are still working, you have 8 months to enroll from the date the coverage stops.
- If you stop working and enroll in COBRA, you still only have 8 months from the day your employment stops to enroll, no matter how long your COBRA coverage lasts.
- If you have your own personal coverage (not GROUP coverage through your employer), there is no Special Enrollment Period.
- If your group plan covers less than 20 people, it may not qualify, be sure to check with your HR department and local Social Security office to be sure.
Typically, your best move will be to enroll right away once you retire and your employment ends. The only typical exception would be if you were laid off and your employer gave you free health coverage for a period of time as part of your severance. However, remember that your enrollment period starts on the day you stop employment, not when your coverage ends.
Quick Medicare Enrollment Period Advice
Here is the short, short version. Be sure you understand all the ifs and buts from above first. But, if you worked your 40 quarters, and you are still employed by a company big enough to have at least 20 employees covered, and you get that coverage from your employer then:
- Enroll in Part A coverage during your initial window (the 7 months around your birthday, 3 months before, the month of, and 3 months after)
- Enroll in Part B as soon as your coverage ends or your leave your job
That’s basically it. You can always contact Medicare directly, and typically most Social Security workers have a pretty good understanding as well.