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.