Medicare questions spike as boomers work past 65

As many aging baby boomers continue to work past the traditional retirement age of 65, financial advisers are being bombarded with questions about whether clients need to enroll in Medicare. The answer depends on several factors.

Most people should enroll in Medicare Part A, which is hospital insurance, when they are first eligible. But certain people may choose to delay Medicare Part B, which is medical insurance, depending on the type of health coverage they have.

Medicare Part A is premium-free to anyone who has paid FICA taxes for at least 10 years and is available for a monthly premium for those age 65 and older who do not qualify based on their own work record or that of their spouse. Medicare is also available to those receiving Social Security disability benefits, regardless of age, after 24 months.

The only downside to enrolling in premium-free Part A while you're still working is you can no longer contribute to a health savings account once you enroll.

If you’re eligible for premium-free Part A, you can enroll in Part A at any time after you’re first eligible for Medicare. Your Part A coverage will begin retroactively six months from when you sign up, but no earlier than the first month you’re eligible for Medicare. To avoid a tax penalty, you should stop contributing to your health savings account at least six months before you apply for Medicare.

Deciding whether to enroll in Medicare Part B, which has a basic premium of $148.50 per month in 2021 and more for people who are subject to high-income surcharges, is a bit trickier.

When you're first eligible for Medicare, you have a seven-month initial enrollment period to sign up that begins three months before you turn 65, includes the month you turn 65 and ends three months after the month you turn 65. In most cases, if you don’t sign up for Medicare Part B when you’re first eligible, you’ll have to pay a late enrollment penalty for the rest of your life, and you could have a gap in your health coverage.

But there are a few exceptions.

People who have group health coverage through their current employer or their spouse’s current employer may be able to delay Part A and Part B and won’t have to pay a lifetime late enrollment penalty if they enroll later. If you want to delay both Part A and Part B coverage, you don’t need to do anything when you turn 65.

However, this exception depends on the size of your employer. If your company has fewer than 20 employees, you should sign up for Medicare Parts A and B when you are first eligible because Medicare pays before your other coverage.

Once your employer or union coverage ends, you may be able to get COBRA coverage, which continues your health insurance through the employer's plan, usually for 18 months and often at a higher cost to you. You have eight months to sign up for Part B without a penalty whether or not you choose COBRA.

If you choose COBRA, don't wait until your COBRA ends to enroll in Part B. If you don't enroll in Part B during the eight months after the employment ends, you may have to pay a penalty for as long as you have Part B and you won't be able to enroll in Medicare until the annual general enrollment period that runs from Jan. 1 through March 31 each year for coverage beginning the following July 1.

Sometimes a former employer may offer to pay some or all of the COBRA premiums for a limited time.

One financial adviser found himself in such a situation when his wife, a corporate executive, was laid off from her job but was offered fully paid COBRA coverage for four months — a valuable benefit worth nearly $1,800 per month. Both spouses were over 65 and already enrolled in Medicare A. The adviser wanted to know if they could accept the former employer’s offer of premium-free COBRA health insurance coverage and still sign up for Medicare Part B penalty-free if they did so within the eight-month special enrollment window.

While you may accept the offer of temporarily paid health insurance, don’t delay enrolling in Medicare, said Justin Lubenow of Senior Advisors, a Medicare benefits advisory service in New Jersey.

“If you leave active employment after age 65, even if the employer is paying your COBRA premiums, the COBRA coverage is secondary to Medicare,” Lubenow said. “This means that the COBRA coverage doesn’t have to pay 80% of your claims since Medicare A and B are your primary coverage after you leave active employment.”

“To avoid gaps in coverage, someone should use the Part B special enrollment period to enroll in Medicare one or two months before employment ends,” advised Emily Whicheloe, education director at the Medicare Rights Center.

Medical costs are often the single largest item in a retiree’s budget and increasingly older clients are turning to their financial adviser for guidance. Advisers can learn about Medicare’s critical enrollment periods, costs and special circumstances through Medicare Interactive Pro courses offered by the nonprofit Medicare Rights Center. The MI Pro online courses are approved for continuing education credit for certified financial planners, certified public accountants and insurance producers in some states.

(Questions about Social Security rules? Find the answers in Mary Beth Franklin’s ebook at InvestmentNews.com/MBFebook.)