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The Medicare Challenge: How to Find the Best Coverage for Your Clients

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As Americans continue to work longer, employees approaching age 65 are faced with the logistical challenge of preparing to receive Medicare and Social Security benefits. In this article, I will explore available options for these employees, and discuss how they can find the best coverage for their individual needs.

The overview

Traditionally, employers that offer a high deductible health plan (HDHP) with an HSA also offer a traditional PPO plan. In this scenario, working individuals nearing age 65 should plan for one of the options below:

  1. Drop their employer’s coverage, accept Social Security, enroll in Medicare and consider a Medicare supplement.
  2. Continue their employer’s group coverage, accept Social Security, enroll in Medicare and consider a Medicare supplement.
  3. Keep their employer’s coverage (including their HSA) past age 65. In order to remain eligible to contribute to an HSA, clients must delay Social Security and Medicare enrollment. They can delay these programs to age 70 1/2 , at which point they will no longer be able to make HSA contributions.

Clients who delay taking Social Security will get a bigger monthly check when they begin drawing funds. If they delay taking Medicare part A, there is no impact or penalty. Delays to Medicare part B or part D, however, incur a late enrollment penalty if clients do not maintain “creditable coverage” after age 65. An HDHP would qualify as creditable coverage.

Planning: Stage 1

Timing is a key part of this process. The first important planning period occurs during the January prior to when your client turns 65. This date is significant because, if the client is covered under an HDHP with an HSA, their eligibility to contribute (and how much they are able to contribute) is based on a calendar tax year.

First, consider your client’s coverage plan: If he or she is covered under an HDHP and contributes into an HSA, but plans to enroll in Medicare at age 65, they should do one of the following for a seamless transition:

  1. Switch to the PPO and stop making HSA contributions.
  2. Continue coverage on the HDHP up to age 65, but pro-rate their HSA contributions for that partial year of coverage. If they don’t do this, it will cause them to become ineligible for further HSA contributions the month that they enroll in Medicare.

If instead your client intends to delay Social Security and Medicare enrollment, the following steps will ensure an easy continuation of coverage:

  1. Make annual HSA contribution selection as usual (up to age 70 1/2 ).
  2. Inform the local Social Security office of their intentions to delay Social Security.
  3. Inform Medicare that they would like to delay enrollment in parts A and B. This is important because part A is automatic, and receiving it will make your client ineligible for HSA contributions. This is also handled by the local Social Security office.

If your client is covered on a PPO plan, nothing needs to be done. After enrolling in Medicare, he or she can decide whether or not to keep the group plan PPO.

Planning: Stage 2

Medicare insures millions of people, all with different variables to consider. To simplify this process, they initiate the decision-making period to occur three to four months prior to your 65th birthday. As your client approaches this date, he or she will receive a Medicare packet and questionnaire, which will help determine eligibility, other coverage and enrollment.

If your client has decided to delay Social Security and Medicare enrollment in order to continue their HDHP with full contribution into an HSA, it’s important that they have confirming documentation from Social Security and Medicare.

If your client has decided to enroll in Medicare upon eligibility, there is nothing else they need to do. However, they do need to determine what Medicare arrangement best suits their needs.

Considering the options
The most common Medicare options include the following:

  1. Drop all group coverage and participate in Medicare parts A, B, and D (prescription coverage), then purchase a supplement, such as Plan F.
  2. Drop all group coverage and participate in Medicare parts A and B, then apply for a Medicare Advantage Plan (a zero premium plan), which will replace supplemental coverage.
  3. Enroll in Medicare while maintaining group coverage. Keep in mind that this option means your client won’t have the clear coordination of benefits that they would with plans offered by the group carriers and Medicare.

In conclusion

Every employee’s needs are different as they approach age 65. Agents advising employers, benefits administrators and employees need to consider the variables that we’ve explored. The right education will help clients make an informed decision that gives them the most appropriate level of coverage.

Jon Taylor is a senior account executive for Neace Lukens. He can be reached at [email protected].

For more exclusive health insurance coverage, visit ASJ’s Health Insurance Resource Center.

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