Misconception #1
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, and the number of employees working for the employer. Whether the drug coverage is “creditable” is also an important factor, but we will ignore this part for the time being and address it in Medicare Misconception #2.
The most common situation is being covered by a group health plan through your employer or your spouse’s employer, based on current employment. The number of employees at the employer is very important.
LARGE EMPLOYER (20+ employees when Medicare-eligible at age 65…or…100+ employees when Medicare-eligible based on disability)
In this case, you can delay enrollment in Part A (hospital) and Part B (medical).
Primary Coverage: Employer Group Health Plan
Secondary Coverage: Medicare A & B (if you enroll)
With the group plan as primary, Medicare Part A and B aren’t really necessary. Many people in this situation, enroll in Part A only, as it doesn’t have a monthly premium. But watch out…that will negatively impact HSA contributions (see Misconception #3). For Part B, we don’t recommend Part B in this case, unless you’re Medicare-eligible based on End-Stage Kidney Failure.
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, based on your current employment or a spouse’s current employment [COBRA and retiree health plans are NOT considered coverage based on current employment…see Misconception #4].
If you decide to delay both Part A & Part B, simply take no action. You DO NOT have to tell Social Security that you don’t want Medicare yet.
If your coverage is based on current employment, you can enroll anytime of the year (without penalty), leading up to your loss of coverage date, or within 8-months after losing coverage using a Special Enrollment Period.
Go to our special Special Enrollment Period webpage to get acquainted with that process: www.medicaremindset.com/sep
SMALL EMPLOYER (under 20 employees when Medicare-eligible at age 65…or…under 100 employees when Medicare-eligible based on disability)
In this case, you do need both Parts A & B.
Primary Coverage: Medicare A & B
Secondary Coverage: Employer Group Health Plan
We always recommend you enroll in both Parts A & B in this case, since it becomes your primary coverage. In many cases, your group health plan will act as though you have enrolled in Part A and B, and pay less or not at all for certain claims…regardless of whether you actually enrolled in Part A and B. In these small group situations, you will need Part A and B in effect, unless you have confirmation from the group health insurance carrier that Part B is not needed (i.e. employer is part of association health plan that classifies the employer as a large employer). 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 during your Initial Enrollment Period (IEP). Your IEP is the three months before your birthday month, your birthday month, and the three months after your birthday month.
Misconception #2
I have drug coverage through my employer group health plan, so I don’t have to enroll in a Medicare Part D Prescription Drug plan when I turn 65.
If you transition to Medicare when first eligible, you will need to enroll in Part D prescription drug coverage during your 7-month Initial Enrollment Period (IEP) to avoid a Part D late enrollment penalty…OR…have CREDITABLE prescription drug coverage from some other source. As long as you enroll during this time frame, you will avoid the Part D prescription drug penalty.
If you transition to Medicare after your Initial Enrollment Period, because you are in a group health plan, you may have a Part D late enrollment penalty. This depends on whether your existing health coverage has creditable prescription drug coverage.
The common feeling of Medicare beneficiaries is, “Of course I have drug coverage in my existing plan.” 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 employer health plans do not meet these standards and have non-creditable prescription drug coverage.
Creditable prescription drug coverage is drug coverage that meets or exceeds Medicare Part D minimum coverage standards. Check with your employer’s human resources department to get confirmation if your plan meets this threshold. They are required to supply you with the letter that confirms this when you request it, or every year (usually when the employer renews benefits).
If you are in a group health plan (beyond your Initial Enrollment Period in Medicare) with non-creditable prescription drug benefits, you will begin to accumulate a Part D late enrollment penalty if you don’t obtain a Part D Plan within 63 days (even if you are Medicare eligible due to disability).
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 calculated based on the number of months you are late enrolling.
This penalty is assessed monthly, and also for life. Reference THIS LINK to see how to calculate your penalty.
Some Medicare beneficiaries knowingly accumulate a Part D late enrollment penalty and avoid enrollment in a Part D Plan at age 65. They would do this only because they wish to continue contributing to a health savings account (HSA) in their group health plan. This scenario will be addressed in Misconception #3.
Misconception #3
I have to stop contributing to my Health Savings Account (HSA) when I turn 65.
Not necessarily. The common misconception is that you must cease HSA contributions the moment you turn 65. This is simply not true. You must cease HSA contributions if you enroll in any portion of Medicare. This means you can continue contributing to your HSA account (up to the individual or family IRS limits, based on whether you have individual or family health coverage), as long as the HSA account owner doesn’t have any portion of Medicare just yet.
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 group health plan has “creditable” prescription drug benefits, is not on any Medicare or receiving Social Security retirement benefits, and is in a large employer plan (reference Medicare Misconception #1)…because no Medicare enrollment of any kind would be required.
As referenced at the end of Medicare 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 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 and Publication 969 for the list of approved medical expenses and HSA rules.
Note: If you enroll in Medicare and/or Social Security retirement benefits after age 65, your Part A start date is typically back-dated 6-months from the month you submit the enrollment (if you don’t already have Part A). This could impact your ability to contribute to a HSA.
Misconception #4
I am already 65 but have COBRA health coverage. When my COBRA coverage ends, I can enroll in Medicare Part B at that time.
If you didn’t enroll in Part B within 8 months after the end of your employment, you CANNOT enroll in 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 B during Medicare’s General Enrollment Period (GEP), which spans from January 1st through March 31st. Depending on the timing of everything, this may create a late enrollment penalty in 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.
Reference Links
Medicare.gov
Medicare Enrollment Periods
How to Enroll in Medicare After Age 65 (VIDEO)
Part D Late Enrollment Penalty
3 Ways to Avoid the Part D Late Enrollment Penalty
Medicare & Health Savings Accounts (HSAs)
IRS Publication 502
IRS Publication 969
General Enrollment Period (GEP)
Neither Medicare Mindset LLC nor its agents are connected with the Federal Medicare program
