It’s important to analyze options prior to signing up for Medicare
Kenny Roger’s classic song, The Gambler, offers sage advice for gamblers. Medicare beneficiaries can learn from it as well.
You got to know when to hold ’em,
Know when to fold ’em,
Know when to walk away,
And know when to run.
Every gambler knows
That the secret to survivin’
Is knowin’ what to throw away
And knowin’ what to keep.
‘Cause every hand’s a winner
And every hand’s a loser.
Most people mistakenly think they are required to sign up for Medicare when turning 65. While usually true, there are some important exceptions. For starters, if you are working past 65 and receiving health insurance on your employer’s group plan (or spouse’s group plan) it’s generally safe to sign up for only Medicare Part A (hospital insurance), since it’s free (but see “3” below for an important exception.)
Let’s explore various scenarios:
1. If your employer has 20 or more employees: Your group plan will be the primary payer (meaning it pays claims first) and Medicare is secondary. At this point I help the employee analyze whether the group coverage costs less and has better coverage than Medicare. If the employee chooses to stay with the group plan, I generally advise clients to skip signing up for Part B—which costs $134 per month for most people— and simply let the group plan pay for any medical expenses.
Signing up for Medicare Part B at this point would not only waste your $134 per month premium, but you could also potentially lose some benefit rights that occur during the “initial (open) Enrollment Period.
When you do finally drop your group coverage, you can sign up for Part B and you will not have to pay the lifetime late enrollment penalty because you had qualifying employer group coverage. Just make sure to verify with your group benefits manager that you do have qualifying group coverage as defined by the IRS.
2. If the employer has fewer than 20 employees: Here the decision is more complicated. When I analyze and compare group plan benefits and premiums, I normally find that it’s best to drop group coverage and sign up for Medicare Part A and B plus get a Medicare Supplement and Drug plan or a Medicare Advantage Plan. However, if the group plan has unusually low premiums and rich benefits, you should ask your employer whether you are required to sign up for Part B in order to have the group coverage. Employers with fewer than 20 employees have the option of letting you stay on their group plan either with or without Medicare Part B signup, so you’ll sign up or not, based on your employer’s rules.
3. If your group health plan is a Health Savings Account (HSA): This is another area where things get complicated because the law states that if you have either Medicare Part A or B, you become ineligible to contribute any new money into your HSA account. If you wish to continue contributions into your HSA account, you MUST waive both Part A and B.
It’s also important for you to ask your employer if the drug portion of your HSA plan is “creditable coverage.” In other words, is the group prescription coverage equal to or better than the Medicare Part D plan coverage? Most HSA plans will NOT be creditable coverage for drug coverage, meaning that the employees will be subject to some late enrollment penalties when they do enroll in a Medicare drug plan. While this potential problem is not necessarily a deal breaker for keeping an HSA plan, it does require a discussion of how to handle it.
Employers must provide a yearly letter to each employee, stating if group coverage is creditable or non-creditable for Part D coverage. While most non-creditable situations will occur with HSA plans, it is possible for some other plans to also have non-creditable coverage.
And so, Kenny Roger’s gambling advice is also apropos for Medicare eligible beneficiaries who are working past 65. “You’ve got to know when to hold ‘em,” meaning whether to buy Medicare Part A or B; “know when to walk away”, meaning when you’re better off waiving Medicare coverage, and waiting for a more opportune time to sign up.
In my next blog, I will discuss the Medicare Part A “gotcha” clause that can bite those who have an HSA plan.