Are you working past age 65 and wondering when you should sign up for Medicare? As is often the case with complicated government programs, the answer is: It depends. Generally, if you’ve paid into Social Security and qualify for Medicare, you should sign up for Medicare Part A when you turn 65. You can enroll in Medicare at ssa.govwithin three months—before or after—your 65th birthday. Even if you plan to delay receiving Social Security, you should enroll in Medicare. Part A covers hospitalization costs—and it’s free.
For those who are still working, the decision to sign up for Medicare Part B, which covers doctors’ visits and outpatient services, is more complicated and involves lifelong penalties if crucial deadlines are missed.
Medicare Part B premiums are $104.90 per month in 2013 for most people. Higher-income retirees—those with an annual income of $85,000 or more and married couples with an annual income of $170,000 and up—pay even more.
Plus there’s the added cost of a Medicare supplemental-insurance plan to cover the gaps in traditional Medicare, such as deductibles and co-payments, and Medicare Part D prescription drug coverage, which also has a surcharge for high-income earners. All those medical costs can add up. Health care costs constitute one of the largest expenses—and biggest fears—you face in retirement.
Gather the facts
Should you, if you’re still working, elect to use Medicare or stick with your employer’s group health plan? There’s no quick answer to that. You should gather all the facts about your group plan and compare it to Medicare. For those 65 or older who work for a company with 20 or more employees, the group plan would be the primary insurer and Medicare is secondary. As long as you have group coverage from your current employer—or your spouse’s current employer—you’re exempt from the delayed-enrollment penalty that permanently raises your Medicare Part B premium by 10 percent for every 12-month period you were eligible for Medicare but didn’t enroll. If you have good, affordable group health insurance, you may want to delay paying for Medicare Part B as long as you—or your spouse—continue to work.
Cheaper option
If you have a high-deductible group plan, switching to Medicare may be cheaper. But once your employment ends, you have just eight months to sign up for Medicare Part B without penalty. This period will run whether or not you choose to continue to participate in your employer’s health insurance plan through COBRA. If you choose COBRA, don’t wait until your COBRA eligibility ends to sign up. If you don’t enroll in Part B during the initial eight months after you stop working, you may have to pay a penalty for the rest of your life.
The rules are different if you work for a company with 19 or fewer employees. Because Medicare is the primary insurer in this case, those who miss the initial enrollment deadline for Medicare Part B, which begins three months before your 65th birthday and extends for three months afterward, will be hit with the delayed-enrollment penalty. Plus you may have to wait up to 15 months to sign up for Medicare during the general enrollment period, which runs from January through March each year.
In the meantime, your employer’s insurance plan, as the secondary insurer, is on the hook for only 20 percent of your medical costs, and you must cover the remaining 80 percent.
Once enrolled in Medicare, you can make adjustments during the annual enrollment period, which runs from Oct. 15 through Dec. 7, during which time you can change your Medicare coverage for the coming year without restrictions. This includes anyone using traditional Medicare with supplemental Medigap coverage, all-in-one Medicare Advantage plans and prescription drug coverage available through Medicare Part D plans.
Medigap
Together, Parts A, B and D make up “traditional Medicare.” But Medicare covers only about half of most health care costs, so you’ll want to buy private supplemental insurance, known as Medigap, to cover many of the deductibles, and co-insurance to extend coverage for hospital stays from 60 to 365 days and to provide limited skilled nursing care and hospice services.
An alternative to traditional Medicare is to purchase a private, all-inclusive Medicare Advantage plan. It eliminates the need to buy a Medigap policy and often includes prescription drug coverage so a separate Medicare drug plan is unnecessary. In fact, Medicare Advantage plans can’t be combined with Medigap policies. Medicare Advantage plans often include additional coverage, such as vision or dental care, not covered by traditional Medicare.
But short-term savings on Medicare Advantage premiums can be costly if you require a long hospitalization. Medicare Advantage only covers a certain number of days in the hospital and most have dollar limits on total coverage. It’s the reason many older people with chronic diseases who require extended hospital stays go bankrupt.
Guidance
Begin at Medicare’s Plan Finder, which is available at Medicare.gov. Also, the Medicare Rights Center (medicarerights.org) offers free education and counseling to consumers and a help line at (800) 333-4114. If you dislike waiting on hold or deciphering health plan options, you may prefer to seek the guidance of a Medicare adviser.
In our wealth management firm, we use a personal health care assessment tool to help estimate health care costs and life expectancy, based on your gender, age and health condition. This, of course, is critical to a retirement income plan. Beyond that, we access Medicare advisers when your health plan choice is the objective.
Montgomery Taylor is an author, investment manager and CPA. He has more than 30 years of experience, including the institutional investment management of hundreds of millions of pension dollars and strategic income tax planning. You can learn more about his work at www.taxwiseadvisor.com or by calling (707) 576-8700.
