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Choosing Between Medicare and Employer Coverage

October 6, 2016

If you have health coverage from your employer, you may be wondering if you need to enroll in Original Medicare, Part A (hospital insurance) and Part B (medical insurance), when you turn age 65. In some cases, it may be to your advantage to delay Medicare Part A and/or Part B enrollment if you have other insurance.

While every person’s situation is different, here are some factors to consider when deciding between employer insurance and Medicare.

Should I enroll in Medicare Part B?

Under normal circumstances, you have to pay a late enrollment penalty for Medicare Part B if you don’t enroll when you’re first eligible. Most people are first eligible for Medicare when they turn age 65, unless they qualify earlier because of a disability or special health conditions.

However, if you have health coverage based on current employment (either through your or your spouse’s employer), usually you can delay enrollment in Medicare Part B without having to pay a late enrollment penalty when you enroll later. Many people wait to sign up for Medicare Part B until after the end of their employer-sponsored health coverage because Part B has a monthly premium, and for many, the additional coverage of Part B in addition to their employer-sponsored group health benefits simply doesn’t provide them the value that Part B coverage offers later— when they don’t have other insurance coverage.

When you retire or if for some other reason your employer-sponsored health coverage ends, you’ll have a Special Enrollment Period to sign up for Medicare Part B. The Special Enrollment Period lasts eight months, beginning as soon as your employer-sponsored coverage ends or the employment that it’s based on ends, whichever event occurs first. If you use this period to enroll in Medicare Part B, you avoid a late enrollment penalty.

You can enroll in Medicare through Social Security. You’ll need to fill out forms providing information about your employment and other health coverage. You can request those forms and apply:

  • By calling Social Security at 1-800-772-1213, Monday through Friday, from 7AM to 7PM. TTY users, call 1-800-325-0778.
  • By visiting a local Social Security office.
  • By contacting the Railroad Retirement Board (RRB) if you worked for a railroad. Call the RRB at 1-877-772-5772, Monday through Friday, 9AM to 3:30PM. TTY users can call 1-312-751-4701.

Keep in mind that health coverage must to be based on current employment, so COBRA or retirement benefits don’t qualify for a Special Enrollment Period.

Should I enroll in Medicare Part A?

Most people enroll in Medicare Part A when they turn age 65, even if they have other health coverage, since Medicare Part A has no monthly premium if you’ve worked at least 10 years (or 40 quarters) and paid Medicare taxes. Keep in mind that if your employer-sponsored health coverage is a high-deductible Health Savings Account (HSA) plan, you may not be able to make further contributions in the Health Savings Account once you’re enrolled in Medicare (although you can make withdrawals). If you have a Health Savings Account plan, talk to your benefits coordinator about how your coverage would work with Medicare.

If you haven’t worked enough quarters paying Medicare taxes to get Medicare Part A without paying a monthly premium, you may be able to qualify through your spouse’s work history. If neither you nor your spouse has worked long enough while paying Medicare taxes to receive premium-free  Medicare Part A, you can still enroll in Part A and pay a premium. However, if you need to pay a premium for Medicare Part A and have employer coverage, you might decide to delay enrollment for both Part A and Part B.

Keeping employer coverage and enrolling in Medicare

You may be able to keep your employer health plan and enroll in Medicare. However, you may end up with more coverage than you need, and you may have to pay a premium for both your employer-sponsored plan and Medicare Part B – along with Medicare Part A, if you don’t receive premium-free Part A.  If you have both, the employer-sponsored plan will coordinate benefits with Medicare.  If the group insurance is sponsored by an employer or union with 20 or more workers, the employer’s health plan is usually primary and pays first and in accordance with its benefits.  Medicare pays secondary to the employer or union plan; furthermore, Medicare pays what the employer’s plan did not pay and in accordance with Medicare’s benefits and maximum allowance—and never more than the billed charge. If the employer has fewer than 20 employees, Medicare usually pays first, and the employer’s plan pays secondary, and no more than the billed charge for covered services.

If you decide to keep your employer insurance and enroll in Medicare, you’ll need to let Medicare know about other insurance you have in your Initial Enrollment Questionnaire, a form you’ll fill out when you first sign up for Medicare. Medicare uses the information in this form to decide which insurance will pay first in regard to your covered health care services.

How to delay Medicare Part A and/or Part B

If you decide to delay Medicare Part A and/or Part B, you might not need to do anything, unless you’re already receiving retirement benefits from Social Security or the Railroad Retirement Board. If you’re under the age of 65 and getting these benefits, you’ll be automatically enrolled in Medicare Part A and Part B when you turn age 65. Medicare will send you a ‘Welcome to Medicare’ packet in the mail, along with your Medicare card. This packet will include instructions for opting out of Medicare Part B if you decide to delay enrollment because you have other health insurance.

Employer coverage and Medicare Part D

Keep in mind that Original Medicare, Part A and Part B, include only limited prescription drug coverage (generally restricted to medications administered to you in a hospital or outpatient office setting). Prescription drug coverage is offered by stand-alone Medicare Part D Prescription Drug Plans, which are available from private insurance companies contracted with Medicare. Similar to Medicare Part A and Part B, there is a late enrollment penalty for Medicare Part D if you didn’t sign up when you’re first eligible and you didn’t have creditable prescription drug coverage, which is coverage that is as good as standard Medicare Part D. Most employer coverage is creditable coverage, but you should verify that every year (the plan should send an annual notice), or you might have to pay a penalty if you enroll in a Medicare Part D Prescription Drug Plan at a later date. The Medicare Part D penalty may apply any time you go without creditable coverage for longer than 63 consecutive days after the end of your Initial Enrollment Period (when you are first eligible for Medicare).