Medicare and Employer Coverage
If you’re still working, or your spouse is still working, and you’re still covered under that group plan when you turn 65 you may think that you don’t need to do anything about Medicare.
You’ll worry about that when it’s time, right? Not so fast.
Ignoring your options or not taking any action can result in thousands of dollars of unnecessary expenses, and can limit your options later when you do decide to make Medicare your primary insurance...
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In this article, I’m not going to address those on Medicare younger than 65. That introduces an extra level of complexity into this decision that will be beyond the scope of what I’ll cover here.
Let’s break down this decision by first looking at folks covered under a group plan because either you or your spouse is still working. Later, we’ll look at how to approach this decision if you’re covered under your retiree group plan.
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Things to Consider When Deciding to Stay on Employer Coverage
Not sure if you should stay covered under your group plan, or get Medicare as your primary insurance along with your own supplemental coverage? Here are some things to consider:
- Ask your Human Resources, benefits department, or group plan administrator whether or not they will require that you have Medicare Part A and/or Medicare Part B when you turn 65. If your company has less than 20 employees, Medicare acts as primary insurance and your group plan will be secondary, so you’re most likely going to be required to sign up for Parts A & B. However, some larger companies still require both Parts to be active, so always check to make sure.
- Consider how your group plan’s coverage changes for you at 65, including changes in premiums. Generally plans are not allowed to change your (or your spouse’s) coverage just because you turn 65. However, some smaller employers can do this. Again, check with your HR, benefits department, or plan administrator.
- If your group plan is not considered “creditable coverage” and you don’t sign up for your own Part D drug plan, you'll probably be penalized later. These penalties increase the longer you’re without creditable coverage, and Part D penalties will last for as long as you’re on Medicare.
- If you leave your employer plan, you may not be able to sign up for it again. Each group plan has different rules, but it’s something to be aware of and look in to. Also, make sure you don't lose your ability to get any retiree healthcare coverage they offer either.
- Ask what other benefits you may lose if you decide to leave the group plan and get your own insurance. In some cases, benefits like healthcare plans and 401k matching may be interdependent. These situations may be rare, but I’m just trying to be thorough here.
- If you enroll in Medicare and your own supplemental plan, you may or may not be able to keep your vision and dental coverage through the group plan. Coverage for routine vision and dental is slim to none with Medicare insurances, so check into the option of whether or not you can keep your current vision or dental coverage alone.
- Brand name drug costs can get extremely expensive under Medicare Part D. If you’re taking one or more brand name drugs, you may fall into the coverage gap or “donut hole” in Part D. This can cause your annual drug costs to reach thousands of dollars in the course of any given year. However, group plans generally offer much more cost-friendly pricing over the course of a given year for these same types of meds, so if you’re taking one or more expensive meds, definitely do your research here before leaving the group plan.
- Even though you may be in your initial enrollment period for Medicare at 65, you may not be able to drop your group plan until your company’s annual enrollment period. Check into your plan rules to make sure of your options.
- If you’re drawing any type of Social Security income, you’ll be automatically signed up for Medicare at 65. This is more likely to impact the covered spouse rather than the covered employee. If you don’t do anything, you’ll have Medicare Parts A & B and the Part B premium will automatically be deducted out of your Social Security check starting in the month you turn 65. This is just something to be aware of. If you don’t want Part B, you need to check the box on the back of the Medicare card form that says “I DO NOT WANT MEDICAL INSURANCE”, sign it and return the form to Medicare.
- If you’re enrolled in Part B (whether by choice, or by default) this will likely limit your options when you leave the group plan, typically either when you or your spouse retires. You have a Medigap Open Enrollment period that lasts for 6 months after the time you’re both 1) 65 and older, and 2) enrolled in Part B. If you leave the group plan more than 6 months after your Part B effective date, you’ll no longer have your Open Enrollment period, which means you’ll have to answer health questions for many of the plans you may want to apply for. These rules, however, differ both by insurance company and by resident state.
- You can’t contribute to a Health Savings Account (HSA) if you’re enrolled in any part of Medicare. HSA’s allow you to make a tax-deductible contribution to an account, in which you can invest the funds and grow them tax-deferred, and then use them for many health-related expenses tax-free. Some folks will enroll in Part A only at 65 because it’s premium-free for almost everyone. However, if you want to contribute to an HSA and your employer doesn’t require you enroll in Part A at 65, don’t.
- Pretty much every group plan will have network restrictions, meaning you have to pay more if you see a healthcare provider out of network, or possibly not be covered at all. However, original Medicare paired with a Medigap plan will allow you to see any doctor who takes Medicare. The latter increases your options of who you can see and where you can get treated.
- Even if you stay on your group plan, signing up for Parts A & B allow you to leave your job quicker, if need be. I’ve had a few clients that know they want to retire soon, so they just make sure and have both Parts active. This way, if they walk into work one day and realize they’ve had enough, they can call me to apply for their supplemental insurance effective ASAP. Otherwise, getting Part B effective could take up to a couple months, and enrolling ahead of time can eliminate this delay.
- Lastly (and maybe most important), do a cost-benefit analysis. If you stay on the group plan, know what your premiums (including Part B premiums if you’re required to enroll), deductibles, max out-of-pocket amounts, and general copays are under that plan. If you and your spouse are enrolled in a family plan within the group, know how much your individual costs and liabilities are. Then, find out how much these costs are if you are enrolled in Parts A & B and get your own supplemental insurances. Consider provider networks along with these costs, compare the choices, and pick the option that makes the most sense for you.
This list is not comprehensive, but is meant to give you an idea of some of the things to be aware of and thinking about. It also lets you know what questions you need to ask and which people to ask. As you can see there’s a lot to consider and things could get pretty complicated, so it’s really best to consult a professional to help you with your fact-finding and make the best decision.
To make this a bit easier to understand, let’s look at some hypothetical examples:
- Situation #1 - Linda works for a large hospital. She’s a widow and pays $46 per pay period (every 2 weeks) for her employer group plan. Her plan doesn’t require she enrolls in Medicare at 65. Her annual deductible is $250 and max-out of pocket is $1,000 annually.
Solution – It’ll be best for her to stay with her employer coverage. If she signed up for Medicare as a new beneficiary in 2017, she’d pay $134 per month. Her max out of pocket and deductibles are fairly low, and even though she could lower them if she enrolled in Original Medicare with a Medigap policy and standalone drug plan, she’d likely pay a few thousand dollars annually in premium alone for this coverage. Compare this to spending $1,104 annually for her group plan premium ($46*2*12) plus her maximum potential out of pocket amount of $1,000, she’ll likely spend considerably less for the year sticking with her group plan.
- Situation #2 – Joe is still working at a small machine shop, and his wife Barb who is turning 65 is on his group plan. He pays $640 per month for their family plan, but his premium would be $120 if he was on by himself. Their plan is an HMO which has a family deductible of $2,000 and a max out of pocket of $5,000 for the year. Barb only takes one generic medication for her cholesterol.
Solution – It’s almost definitely going to be better for Barb to leave Joe’s group plan and get Medicare with her own supplemental coverage. If she stayed on his plan, they’d have to pay over $500 per month in premium for her coverage. She could likely get Medicare along with a Medigap plan and a standalone drug plan for half that amount; this option would lower her potential out-of-pocket expenses down to almost nothing, and would give her the freedom to see any doctor who takes Medicare, rather than stay within the HMO network.
Steps to Take at Retirement
If you have continued to stay on your, or your spouse’s, employers group plan and have not signed up for Part B, you’ll need to do so when that group coverage is done. There will be 2 forms that you need to get filled out and returned to Social Security:
- Form CMS 40B – Application for Part B. Use this form if you currently have Part A only.Write in the ‘Remarks’ sections of this form what you want your Part B effective date to be
- Form CMS-L564 – Your HR or benefits department will need to fill out part of this form to verify that you’ve had creditable coverage through your group plan, and what dates it was effective.
Once you fill out these 2 forms, I recommend taking them down to your local Social Security office and deliver them by hand anywhere from 4-8 weeks before your desired Part B effective date. If you mail them there’s a chance they could get delayed and not processed in time.
Once that’s done you’ll need to talk to an independent insurance broker to find your best Medicare supplemental insurance options. That’s where I come in. You can call me at 866-240-8639 or email me at email@example.com.
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Retiree Coverage Option
If you’re covered under a group plan as a retiree, whether it’s from your former employer or your spouse’s, your options will probably be very different compared to those from active employment. First of all, in almost every case you’ll be required to get both Parts A & B at 65. You still need to find out how your retiree coverage changes at 65, whether or not it’ll be offered at all. And, a big thing to still consider is your annual drug costs. Most retiree plans don’t have “donut holes” so they may be a better option for retirees on a lot of expensive medications. And lastly, do that cost-benefit analysis comparing your retiree coverage with your options available with Medicare supplemental insurances available to the public.
Here’s one example of a retiree coverage cost-benefit analysis:
- Situation #1 – Jeff retired from a small painter’s union a few years back and is turning 65. His premiums will be going to $240 per month and he’ll be paying $134 per month for Medicare Part B. He could get Medigap insurance for $130 per month. However, Jeff has an autoimmune disease and takes a very expensive brand name drug daily. This drug costs $80 per month under his retiree plan, but would run $3,500 annually in total drug costs under Medicare Part D.
Solution - Even though he could save a little over $1,300 for the doctor and hospital part of his coverage by leaving his retiree plan, he would spend more than $2,500 more for his drug costs by leaving. In this situation, it’s probably best for him to stay put, and re-evaluate down the road if a much cheaper generic ever becomes available for his medication.
Hopefully this article has helped a little with your Medicare decision if you still have the option of continuing with group coverage at 65. In my years of experience, I’ve found that the larger the employer, the better the health plan is. So, it’s often best to continue in their plan if possible while you, or your spouse, are still working. However, very few business will offer retiree healthcare coverage at all, let alone to those who are Medicare eligible, so you’ll need to shop for your own supplemental insurance at that time.
Every situation is unique, and everyone’s healthcare needs are different. The purpose of this article is to help you think through your Medicare decision and consider the points that are important to you. Don’t just rush through this decision, but do your research and make the best choice you can, and talk to an expert who can guide you. You can call me for assistance at 866-240-8639 if you like. Good luck!