When Should you apply for Medicare?

So you are turning 65 and you are wondering when you should apply for Medicare. The simple answer is to apply as soon as you are eligible. Your initial enrollment period begins 3 months before your 65th birthday month and coverage begins on the first of the month you turn 65. Doing so will avoid fines associated with Part B and Part D. No one likes paying extra fees if you can avoid them.

There is an exception.

While many will need to apply for Medicare when they turn 65 to avoid penalties, those who have not retired may be allowed to continue with their current employee health coverage and temporarily opt-out of Medicare. However, not all jobs are created equal. You (or your spouse if covered under their insurance) must be employed at a company with 20 or more employees and covered by the company’s group health plan. Under these conditions continuing with your current health coverage and temporarily opting out of Medicare will not be penalized. This is known as creditable group coverage.

On the contrary, employees working at small companies will be required to join Medicare to avoid penalties. You can still keep your small employer coverage if you would like to and it would pay secondary to Medicare. Word of advice: always check with your HR department to determine if your company meets the creditable group coverage criteria according to the IRS. Cobra is not considered creditable coverage.

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I work at a company with more than 20 employees. How do I choose between continuing with my current plan or opting into Medicare?

Here are some reasons you may want to opt in to Medicare, even though you have creditable group coverage.  Your current coverage is more expensive than coverage with Medicare.  Here is the formula:

Part A + Part B + Part D +Medigap /Advantage </> current creditable group coverage

Let’s run some numbers.

Medicare Part A (which provides inpatient coverage) is free for those who worked 40 quarters (10 years) throughout their working career. Part B (which provides outpatient coverage) has a premium of $170.10 in 2022. The premium is higher for those with high incomes. It is important to compare the benefits and costs of what your employer has to offer versus what coverage and costs are associated with a Medicare Supplement plan or a Medicare Advantage plan. For example, if there is a large premium or cost share involved with your employer plan, it may be beneficial to opt-out and utilize your Medicare benefits.

I deferred Medicare when I turned 65, since I have creditable coverage. Now I changed my mind. Do I have to wait for the Medicare General Enrollment Period?

No.

Even if you decide to keep your creditable group coverage when you turn 65, you can later change your mind. One can sign up for Medicare at any point in time through the social security administration. You are eligible for the Medicare Special Enrollment Period. You will have to submit form CMS L564 proving that you had creditable group coverage up until that point.

Enrolling in Medicare Part B will trigger a Medicare supplement open enrollment period and you can choose any plan available for 6 months.

Can I sign up for Part A only?

Yes! This is usually a good choice, even while on creditable group coverage, as there are no costs associated with Part A. This will give you extra hospital coverage. For example, if your employer coverage has a $3,000 inpatient deductible, the Medicare deductible is only $1556 saving you $1444.

Can I sign up for Part D only?

No, you need to be on Medicare Part A and/or Part B to buy a Part D drug plan. If you do not have creditable drug coverage through your employer you will need to sign up for Part A and/or Part B plus a Part D drug plan to avoid a Part D late enrollment penalty. If you would like to enroll in a Medicare Advantage plan that includes Part D (an MAPD) you will need to first be enrolled in BOTH part A and part B.

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Other things to keep in mind.

It is important to consider drug costs before making any changes. Additionally, if you are contributing money to an HSA, you can no longer do so if you are on Part A or Part B of Medicare.

Takeaway:

You may want to opt-out of your employer coverage if you can get comprehensive coverage through Medicare at a cheaper price or with less cost-sharing. If you are relying on the tax benefits of your HSA contributions or taking expensive medications this may not be a good choice for you, and you can sign up when you retire using a special enrollment period.

Medicare is Confusing! We are here to help. Feel free to post questions below or contact us directly.

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Disclaimer: Views expressed by the writer are not a representation of CMS/ Medicare/Medicaid or any government entity. Never cancel current coverage until you are fully approved for the new rates.