Transitioning to Medicare is incredibly time-sensitive and often misunderstood. So today, we’re breaking down the most common Medicare misconceptions we see on a regular basis, so you can enroll easily and avoid mistakes.
To avoid a lifetime penalty, I have to enroll in Medicare Part A (hospital) and Part B (medical) when I turn 65.
This depends on whether you plan to continue to be covered by employer provided group health insurance when you turn 65.
Large Employer (20 or more employees, or over 100 if on Medicare prior to age 65 due to disability)
If you or your spouse’s employer is considered “large,” you can delay enrolling in Part A (hospital) and Part B (medical) and choose your Medicare coverage start date in the future. If you take this route, the group health plan will be primary, so Medicare Part A and B are not necessary. If you do have Part A and/or B, it will be secondary to the group health plan, and you may be paying the Part B monthly premium with very little benefit to you. Enrolling in premium-free Part A is fine, as long as you aren’t contributing to a Health Savings Account [see Misconception #3].
Note: If you delay enrollment in Part A and/or B to a future date, you won’t be penalized, as long as you have continuous health coverage through the group health plan. COBRA and retiree health plans are NOT considered coverage based on current employment.
Small Employer (20 or less employees, or less than 100 if on Medicare prior to age 65 due to disability)
If you or your spouse’s employer is considered “small,” you will need to enroll in Part A and B. This is necessary because Medicare is primary in this situation.
In many cases, your group health plan will act as though you have enrolled in Part A and B, and pay less on medical claims, regardless of whether or not you actually enrolled in Part A and B. In these small group situations, you will need Part A and B in effect.
The bigger question is really whether you should stay in the group health plan as a secondary payer. It may make sense to transition entirely to Medicare with supplemental medical and drug coverage, and leave the group plan.
If you don’t have access to an employer provided group health insurance plan (or some other creditable health coverage) when you turn 65, you will need to enroll in Medicare Part A and B, and obtain the necessary supplemental medical and drug coverage.
I have drug coverage through my employer group health plan, so I don’t need to enroll in a Medicare Part D Prescription Drug plan.
If you transition to Medicare after your Initial Enrollment Period because you are in a group health plan, you may incur a Part D late enrollment penalty. This depends on whether your existing health coverage has creditable prescription drug coverage.
Most Medicare beneficiaries think their drug coverage in an existing plan is enough. But simply having drug coverage isn’t the issue. Creditable prescription drug coverage means that it meets or exceeds Medicare Part D minimum coverage standards. Some health plans do not meet these standards and have non-creditable prescription drug coverage. If you are in a group health plan with non-creditable prescription drug benefits and are beyond your Initial Enrollment Period in Medicare, you will begin to accumulate a Part D late enrollment penalty.
The Part D late enrollment penalty is assessed and charged only when you actually enroll in a stand-alone Part D plan or Medicare Advantage plan with Part D benefits. The penalty is based on the number of months you are late enrolling.
Here is an example of a late enrollment penalty assessed in 2019 for a beneficiary enrolling in a Part D plan 10 months late…
..2019 Part D National Base Premium = $33.19/mo
..1% of $33.19 = $0.3319
..Multiply $0.3319 by the number of months you are late enrolling ($0.3319 X 10)
..2019 Part D penalty = $3.32/mo → rounded to the nearest ten cents → $3.30/mo
This penalty is assessed monthly, for life. Keep in mind, as the Part D National Base Premium fluctuates, so will your Part D penalty.
Note: Some Medicare beneficiaries knowingly accumulate a Part D late enrollment penalty and avoid enrollment in a Part D Plan at age 65. This is only recommended for those who wish to continue contributing to a health savings account (HSA) in their group health plan, which leads us to Medicare Misconception #3.
I have to stop contributing to my Health Savings Account (HSA) when I turn 65.
This is simply not true. Continuing to contribute to an HSA account beyond age 65 can be a great strategy for someone working beyond age 65 and staying in a group health plan. This typically will only be a good strategy IF the Medicare-eligible employee has “creditable” prescription drug benefits in his/her group health plan, is not receiving Social Security retirement benefits, and is in a large employer plan…as we discussed in Misconception #1. Keep in mind, you must cease HSA contributions if you enroll in any portion of Medicare.
As referenced at the end of Misconception #2, some beneficiaries knowingly accumulate a Part D late enrollment penalty in order to load up their HSA accounts while they can. This really should be a short-term solution because the longer you do this, the larger the Part D penalty will be when you do eventually enroll in a Part D plan. Typically, beneficiaries utilize this strategy when they know they will retire and/or lose group health coverage in a few years or less (usually 2 years or less). Otherwise, the penalty gets larger, and the strategy might not make sense.
Note: HSA account balances can be used for qualified medical expenses while in a group health plan, and also once enrolled in Medicare. Reference IRS Publication 502 for the list of approved medical expenses.
I am already 65 but have COBRA health coverage. When my COBRA coverage ends, I can enroll in Medicare Part A and Part B at that time.
This is not true. If you didn’t enroll in Part A and/or Part B within 8 months of the end of your employment, you cannot enroll in Part A and/or Part B whenever you want. Outside of this 8-month time frame, COBRA coverage is NOT a Special Enrollment Period (SEP) opportunity for Medicare. Instead, you will need to enroll in Part A and/or Part B during Medicare’s General Enrollment Period (GEP), which spans from January 1st through March 31st each year. Your Medicare coverage date will be delayed to July 1st of that year. Depending on the timing of everything, this may create a late enrollment penalty in Part A and/or Part B, which will increase your Medicare premiums for life.
An additional issue here is that Medicare is primary to COBRA health coverage. This means that if you don’t have Part A and B while on COBRA, your medical coverage may come up short because your COBRA health plan will pay claims as if you have Medicare Part A and B, leading to additional out-of-pocket expenses.
What assumptions do you have about Medicare enrollment? Are they accurate? We’re here to help you understand Medicare, from enrollment to expenses. Contact us today for one on one support.
Neither Medicare Mindset LLC nor its agents are connected with the Federal Medicare program.