If you’re approaching 65 and getting ready to clock out of your job for the last time, one of the things you’re probably thinking about most is healthcare coverage. One of the biggest benefits of most jobs is employer-sponsored health insurance. That coverage will likely disappear after you retire, so it’s important to have a strategy for signing up for Medicare.
Like most healthcare plans, Medicare has specific enrollment windows. If you don’t enroll on time, you may face a coverage gap.
But unlike private insurance plans, there are additional enrollment rules to follow and you may face a penalty if you don’t enroll during your initial enrollment period (IEP). For all parts of Medicare, this period begins three months before the month of your 65th birthday and ends three months after your birthday month.
Late enrollment penalties may be incurred for Medicare Parts A, B, and D, but not Medicare Part C (Medicare Advantage). Here’s how you can avoid the penalties for each:
Medicare Part A
Medicare Part A covers hospital costs and is premium-free as long as you or your spouse have a minimum of 10 years of work experience. If you’re eligible, consider enrolling as soon as you can, even if you’re over 65, still working, and covered under your employer’s health plan.
If you aren’t eligible for premium-free Part A and you don’t buy it during your IEP, your monthly premium may go up by 10%. You’ll have to pay the higher premium for twice the number of years you could have had Part A, but didn’t sign up. As a result, if you’re not eligible for premium-free Medicare Part A, you should sign up during your IEP.
Medicare Part B
Part B covers medical care and equipment. It has a monthly premium of about $135 (or more, if you’re a high earner).
This is the most important part of Medicare to enroll in on time as it has the most significant late enrollment penalty.
For each year that you’re eligible for Part B but are not enrolled, your Part B premium will go up by 10%. And that increase is permanent, not temporary. That’s right, the penalty lasts for the rest of your life.
You can delay enrolling in Part B if you keep working and your company’s health coverage is qualifying. To be considered qualifying, your employer must have more than 20 employees and offer group health plan coverage as defined by the IRS. If your employer healthcare is qualifying, you won’t pay the penalty if you sign up for Part B within eight months of leaving your job during the Special Enrollment Period.
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Medicare Part D
Part D covers prescription medications and costs about $33 per month. Like Part B, the premium may be higher if you are a high earner.
The penalty for Part D is a one percent premium increase for each month that you should have been enrolled.
As is the case with Part B, you can delay enrollment if you have qualifying employer healthcare coverage. Unlike Part B, however, you’ll only have two months to enroll once you no longer have that coverage.
After you do enroll in Part D, the insurance company will send you a form to complete and return to verify that you were allowed to delay enrollment. If you fail to send the letter back, you will have to pay the penalty.
Two types of healthcare coverage that are NOT considered qualifying in the eyes of the IRS are COBRA and health insurance from your employer after you stop working. So, if you retire and continue your company’s health insurance plan (either directly or through COBRA benefits), make sure to enroll in Parts B and D before their respective deadlines.
What About Medicare Advantage?
There is no late enrollment. If you’re considering a Medicare Advantage Plan, you’ll have two months from the date your employer healthcare coverage ends to enroll without waiting for the annual open enrollment period from October 15 to December 7. Questions about Medicare Advantage? We covered it here.
Frankly, I could write pages and pages about Medicare—it is just THAT complicated.
As you can see, if you don’t enroll in a timely way, you could not only face a gap in healthcare coverage, you may have to pay late penalties in the form of higher premiums for the rest of your life. That’s why it’s so important to work with a professional who can walk you through the process.
The best time to make decisions about Medicare is at least several months before you plan to retire. If that date is approaching and you need help, we’re here for you! Sign up here for a no-cost, no-obligation conversation with one of our experienced financial advisors today.