Some of the scariest things about enrolling in Medicare is that it's incredibly complex; you may only have one chance to make decisions for life; and it can be extremely costly if you make a mistake. It's no surprise many retirees are left wondering when to file for Medicare. To make things more complex, if you're still working or are in an unmarried relationship there are more special rules that may apply to you.
I'm still working and have health insurance:
As lifespans continue to improve in terms of length and quality, more and more people continue to work past the once standard retirement age of 65. This allows many people to save more for retirement, have a sense of purpose, and take advantage of the corporate benefits that would elapse if they retired. One of the major benefits of working prior to Medicare age (65) is that many employers provide health insurance. But what if you're still working past Medicare age? Do you keep your insurance through work, or file for Medicare? This is a common conundrum for many if they continue to work past 65.
Does your employer insurance qualify?
Medicare is made up of numerous parts. Part A is considered hospital insurance primarily covering hospital stays. Part B is for doctor visits. This includes visiting your primary care physician, lab tests, preventative care, etc. Part D if for prescription drugs. Don't worry, we didn't forget about Part C . . . Part C is optional. Part C is called Medicare Advantage and covers some of the gaps between A, B, and D. In lieu of going on Medicare Advantage, you could also purchase a supplement policy, called Medigap, to fill in those holes.
Your employer coverage may cover some, or all, of these various parts. Generally speaking, if you're working past age 65 you should still enroll in Medicare Part A as you approach your 65th birthday. This is because there is no cost for you to enroll.
However, Part B does have a premium associated with it which varies based on your income. The more your income is, the higher the monthly premium you will pay (this is called IRMAA). If your employer has over 20 employees generally you are not required to enroll in Medicare Part B when you turn 65. Depending on how much you pay for insurance and your coverage, this could save you money by delaying enrollment in Medicare.
Part D is trickier. To avoid any late enrollment penalty you need to have other coverage. More than that, you need to have "credible coverage" based on Medicare's coverage standards. If you work past 65 your insurer should notify you each year whether the plan qualifies as credible coverage or not. If it does, then any late enrollment penalty should be waived, otherwise you should consider enrolling in Part D.
In either case, for Part B or Part D it's best to consult your insurer to confirm whether your insurance qualifies as credible coverage for a late enrollment exception.
What if you're covered by your spouse?
Another consideration if you're married, is whether you can be covered by your spouse's plan. In many instances it makes more financial sense to be covered under a family plan than each person getting their own individual insurance. This is especially true if one spouse is working while the other is not. This is also true in domestic partnership situations, which may be more common in the LGBTQ community. Domestic partners also qualify for spousal benefits when it comes to family group insurance.
However, it's important to note that domestic partnerships are not recognized by Medicare for avoiding a late enrollment penalty. So even though you may be covered by a partner’s insurance past age 65, you may still need to enroll in Medicare to avoid a penalty. This can have significant implications for those in the LGBTQ community, among others, who are not married because the late enrollment penalty lasts for life!
What is the penalty?
The penalty varies by each Medicare part.
The Part A enrollment penalty is 10% of the monthly premium. Unlike Part B, this penalty is temporary. It lasts for twice as long as you should have been on Part A but didn't enroll.1 For instance, if you did not have credible coverage and should have been on Part A for the last two years, you would pay the penalty for 4 years.
The Part B penalty is much less forgiving. First of all, it lasts for as long as you are enrolled in Part B, which for most, is for the rest of your life! The penalty is 10% for each 12-month period you should have been enrolled but were not.1 Therefore, if you were late enrolling by 5 years you would pay a 50% penalty for the rest of your life!
Like part B, the Part D penalty lasts for as long as you are enrolled in Part D (generally for life). The calculation of the penalty is a little more complex. The penalty is 1% of the "national base beneficiary premium" (which changes every year) for every month you were not enrolled in credible coverage.1 So if you were late enrolling by 10 months, the penalty would be an additional 10% of the national base beneficiary premium.
What should you do?
If you're still working past age 65 you have numerous options. Making a mistake on your enrollment can mean steep penalties for life. Each instance is unique, so before making a decision we suggest speaking with financial planner or qualified insurance expert.
1) Stay on your employer coverage
In this scenario it is critical that you confirm that your employer coverage qualifies. If it does not you should enroll in Medicare regardless. If it does qualify you should weigh the costs and coverage between staying on the employer plan to Medicare and supplemental coverage.
Often it is less costly for similar coverage to go on Medicare even if your employer insurance qualifies for an exception. If you're unmarried, or in a domestic partnership, and are covered by your partner's insurance you should almost certainly enroll in Medicare to avoid any late enrollment penalties if you're turning 65.
2) Enroll in Medicare:
You could instead simply enroll in Medicare and drop your employer coverage. Like before you'll want to weigh the costs of doing so to staying on your current plan. Also, if your spouse is covered by your insurance, and they do not yet qualify for Medicare (generally under age 65) it may be more prudent to stay on your employer plan so they maintain coverage. This is true whether in a domestic partnership or married. However, if your partner is turning 65 or older, and qualifies for Medicare, this is not a consideration.
3) Split the difference:
In some cases, especially for domestic partnerships, it may make more sense to change from a family plan to an individual. If your coverage is better/less expensive than what you would receive from Medicare you may want to stay on your plan. However, if you're in a domestic partnership, and are turning 65 you'll likely want to enroll in Medicare to avoid the late enrollment penalty. This would allow the partner who is not working to go on Medicare to avoid the penalty, while the other stays on their employer's insurance.
There's a lot to think about as you consider when to file for Medicare. Especially when it comes to those who are unmarried and living in a domestic partnership. Choosing the proper insurance is a difficult decision, let alone the high cost if you make an enrollment mistake. It's crucial to consider all your insurance options when it's time to enroll in Medicare. The best way to ensure you make the best decision is to inform yourself, do your research, and reach out to a qualified financial advisor or insurance agent for help.
Nick Prigitano, CFP® is an advisor at Milestone Financial Planning, LLC, a fee-only financial planning firm in Bedford NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services, and have unlimited access to our advisors. We receive no commissions or referral fees. We put our clients’ interests first. If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisors.