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 The rules are full of pitfalls that can cost you thousands of
dollars in unnecessary premiums or lead to a risky gap in coverage.
Here are the six most frequent questions I get about the
work-to-Medicare transition:
1. Is the Medicare enrollment process automatic?
A: Only if you have already claimed Social Security benefits
by the time you turn 65, which is the Medicare eligibility age.
If not, Medicare requires you to sign up in a seven-month window
before and after your 65th birthday, unless you have employer
coverage or through your spouse.
Failing to sign up when required is costly. Monthly Part B premiums,
which cover doctor visits and medical supplies, jump 10 percent -
lifetime - for each full 12-month period that you should have been
enrolled. Penalties also are applied for late enrollment in Part D
(prescription drugs).
If you retire after 65, you can take advantage of an eight-month
special enrollment period that begins the month after employment
ends.
2. Should I enroll in Medicare even if I am offered COBRA health
insurance when I leave my job?
A: Yes. Although you might need COBRA to cover a spouse or
dependent child, Medicare must be your primary insurance coverage
once you are over age 65.
"People often miss that memo and find out about the consequences in
a nasty way," says Katy Votava, president of Goodcare.com, which
advises consumers on health plan selection.
Besides leading to penalties, missing the special enrollment window
could mean going with nothing but COBRA, which provides limited
coverage to retirees, until the next enrollment period, which could
be a year away.
3. What if I am still working when I turn 65?
A: If your employer has fewer than 20 insurance-eligible
workers, Medicare will be your primary coverage, so go ahead and
enroll.
You can stick with your employer's coverage and forestall Medicare
enrollment if your employer has 20 or more insurance-eligible
workers. The insurance must be similar to Medicare benefits as
measured by a set of standards set by the program.
You also could enroll in Medicare, which would provide secondary
coverage to fill gaps in your employer's plan.
One caveat: Do not enroll if you contribute to a Health Savings
Account linked to a high-deductible employer plan. You are
prohibited from making further contributions to the HSA once
enrolled in Medicare.
4. What if I want to execute a file-and-suspend strategy for
Social Security? Could I contribute to an HSA in that situation?
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A: No. Claiming Social Security benefits automatically
triggers enrollment in Medicare Part A, which covers hospital and
nursing home stays. That would still be true if you file and suspend
your benefits while still working and participating in a
high-deductible employer health insurance plan.
5. Do I sign up for Medicare when I retire if my former employer
provides a retiree health benefit?
A: Even if your former employer offers a retiree health
benefit, it is important to sign up for Medicare at age 65 to avoid
penalties and coverage gaps. Employer-provided benefits usually
provide a secondary layer of coverage - often covering co-pays or
providing a drug benefit.
The key to coordinating the two insurance plans: "Understand who
pays first," says Votava.
But Votava says retirees should compare the cost of retiree coverage
with what is available on the open Medicare market. "I often see
people holding on to retiree coverage when it’s not the best value
for them."
This is especially true for with supplemental plans that cap
out-of-pocket costs, either Medigap or Medicare Advantage. "I've had
clients find much less expensive Medigap or Medicare Advantage
policies with equal or better coverage," Votava says.
6. What if I retire, enroll in Medicare and then go back into a
full-time job?
A: If your new employer provides health insurance, you can
drop Medicare and re-enroll when you finally retire without paying
late enrollment penalties.
Call the Social Security Administration (1-800-772-1213), which will
send a form to sign that creates a record of what you are doing. The
paper trail is important because it helps you avoid late enrollment
penalties when you return to Medicare.
(Editing by Beth Pinsker and Lisa Von Ahn)
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