These days many people work well past 65. In many of these cases, Medicare pays secondary to the employer group health coverage. But what does that mean exactly? And should beneficiaries enroll in just Part A or also Part B? Will you need a drug plan?
These are all common questions from workers across America as they are turning 65. Let’s take a look at when Medicare is secondary coverage and how it functions.
Large Employer Coverage
If you or your spouse work for an employer with more than 20 employees, that employer group coverage will pay primary and Medicare will pay secondary. Your employer group coverage already includes benefits for the same things that Medicare covers – inpatient coverage, outpatient coverage, and medications.
Since this is the case, most people only enroll in Part A in this situation. Part A covers your hospital care and most Medicare beneficiaries pay nothing for Part A. This is because during your working years, you pay FICA taxes and some of these taxes go to pre-pay our hospital coverage.
Enrolling in Part A then generally will cost you nothing, and it could help you in the event that you have a hospital stay. Let’s say that your employer coverage has a $3000 deductible. You have a hospital stay and normally you would have to satisfy that $3000 deductible because the charges for a hospital stay of even one night will often run more than $3000.
However, if you have enrolled in Medicare Part A, Medicare pays secondary. It will step in to pay the difference between Medicare’s deductible and the employer deductible. In 2019, the Medicare Part A deductible is $1364.
If for some reason you didn’t work at least 40 quarters to qualify for free Part A at 65, then you can purchase Part A from Social Security. It’s quite pricey though – running over $400/month. Some individuals in this situation will choose to continue working to amass more quarters of work history. Don’t forget that you can also qualify for free Part A based on your spouse’s work history. Medicare pays secondary to your spouse’s coverage if you are a dependent on that coverage.
One exception in which you should not enroll in Part A is if you are contributing into a health savings account. The IRS doesn’t allow you to contribute to your health savings account if you are enrolled in any other kind of health coverage except for the high deductible health plan that allowed you to enroll in the health savings account in the first place.
Medicare Parts A, B, C, and D all are considered other coverage, so you should postpone enrollment into all Parts of Medicare if you plan to continue making contributions or accepting contributions from your employer. This will keep you out of trouble with the IRS.
Should You Also Enroll in Part B?
Many beneficiaries ask us if they should also sign up for Part B in this situation. While it’s entirely up to you, Part B has monthly premiums. This year those premiums are at least $135.50/month. Since your employer coverage already has benefits for outpatient medical, you really don’t need to spend an additional $1500 or more per year for Part B.
Instead, you can delay Part B and enroll in that later when you stop actively working. When you (or your spouse) retires and you lose the group coverage, you will have a Special Enrollment period to add Part B
The same is true of Part D. Most employer plans offer creditable drug coverage that is as good as or better than Medicare. This means you can delay enrollment into Part D, since Part D plans also have monthly premiums.
This allows you to save those premiums while still working. Consider putting them away for your future healthcare expenses in retirement.
A Word About Small Employer Coverage
It’s important to mention that if you happen to work for a small employer with less than 20 employees, Medicare will be your primary coverage and the group coverage will pay secondary. When this is the case, you should enroll in both Medicare Parts A and B at age 65.
Your group coverage will pay secondary. Since that group coverage likely has medication coverage, you can probably still delay your enrollment into Part D. You’ll have the opportunity to pick that up later on when you retire and there won’t be a penalty if you enroll within 63 days of losing the creditable employer coverage.
Occasionally a group will determine that their drug coverage is NOT as good as Medicare Part D. If this occurs, the employer must notify you by law that the coverage is not creditable so that you can enroll in Part D earlier.
Turning 65 when you are still working can be tricky with Medicare. There is no need for you to go it alone. Give us a call here to speak with an expert that can walk you through the ins and outs. We can also help you compare the costs of your group plan with the costs of Medicare and supplemental insurance to make sure that you choose the most cost-effective coverage.