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The Math of Medicare Enrollment Delay Option for Working Clients

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It’s no secret that many clients today continue working well past age 65, the age that they become eligible to enroll in Medicare.

For clients with employer-sponsored health coverage, the decision as to whether to enroll in Medicare at age 65 may seem like a no-brainer—why would the client want to pay the monthly premium on two different health insurance plans, especially when he or she is already accustomed to the coverage provided by the employer plan?

Unfortunately, for many clients, the calculus is not nearly so simple.  Deciding whether to delay Medicare enrollment actually involves several moving pieces—and the penalties for getting the choice wrong can be steep.

Delaying Medicare Part B

Generally, if an individual does not sign up for Medicare when he or she first becomes eligible, a late enrollment penalty will apply to increase his or her monthly premium for life. However, Medicare rules allow clients who are covered by an employer-sponsored health insurance plan to delay enrollment in Medicare Part B without paying the lifetime penalty. Medicare then provides a special enrollment period, during which the client will be able to sign up for Medicare Part B at any time he or she is covered by the employer-sponsored health insurance, or up to eight months after that coverage ends, without penalty.

While the exception does technically apply to all clients with coverage from a current employer, there is a catch for clients who work for smaller employers. If the employer sponsoring the health coverage has fewer than 20 employees, Medicare will be treated as the client’s primary coverage, and the employer-sponsored health insurance will be considered secondary.

If the employer-sponsored coverage is “secondary” to Medicare, the insurance company will likely reduce the amounts that it will pay for the client’s health expenses, potentially increasing the cost of his or her healthcare. In some cases, the small employer may negotiate with the insurance company to obtain “primary” health coverage for its employees, but this is rare and the client should be careful to get the promise in writing.

If the employer has 20 or more employees, the employer-sponsored coverage will be the client’s primary coverage, and his or her payment requirements should not change.

Clients with other types of employer-sponsored coverage, such as COBRA or retiree only coverage, typically do not qualify for the penalty-free Medicare enrollment delay (i.e., these types of coverage are secondary to Medicare), and must enroll at age 65 to avoid the lifetime penalty.

It is also important that clients who choose to take advantage of the penalty-free Medicare delay remember that they must enroll during the special enrollment period discussed above, or they will be required to wait until the general enrollment period—in which case, a late enrollment penalty could again apply based on the coverage gap between the special enrollment period end date and the general enrollment period start date.

The HSA Factor

Clients should also note that once they enroll in Medicare, they are no longer eligible to contribute to a health savings account (HSA).  While this primarily becomes an issue when clients are automatically enrolled in Medicare Part A coverage upon beginning to collect Social Security benefits, clients considering delaying Medicare should be aware of the possible penalties for ineligible HSA contributions.

If the client continues to work past age 65, delaying Social Security benefits can be an option that can allow them to continue making penalty-free HSA contributions if the client chooses to delay Medicare Part B enrollment, as well.  Clients who do choose to claim benefits must understand that they will automatically be enrolled in Medicare Part A.

Additionally, when the client eventually does begin claiming Social Security benefits, he or she will have to stop making HSA contributions six months prior to claiming benefits in order to avoid penalties.  This is because the Social Security Administration (SSA) provides six months’ worth of back pay on the client’s benefits retroactively from the time he or she begins collecting Social Security. This “look back” period can cause the client to become subject to penalty taxes on his or her HSA contributions unless those contributions end six months prior to Medicare enrollment.

Clients can specifically instruct their Social Security representative that they do not wish to receive the six months’ worth of retroactive benefits to avoid penalties on HSA contributions made in the six months prior to collecting Social Security. Clients who take this route should avoid enrolling online, and must instead either make a phone appointment or a face-to-face appointment at a Social Security office.


Deciding when to enroll in Medicare coverage is made more complicated when a client continues to work, but for many clients, this can provide an incentive to delay Social Security benefits along with Medicare coverage, allowing for a larger eventual monthly lifetime benefit.  Clients should carefully consider each decision, and this involves looking to the type of employer-sponsored health insurance involved, as well as whether tax-preferred HSA contributions remain a factor.


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