What to consider when discussing Medicare enrollment with clients

For the vast majority of the 10,000 baby boomers who turn 65 every day (a demographic fact that will continue through 2030),¹ hitting this milestone birthday entitles you to Medicare. However, unlike our parents, your clients will not be entitled to “full” Social Security benefits at that time. Also, whether out of desire or necessity, more and more baby boomers will not be retiring at age 65. This fact often creates additional options, in terms of covering healthcare costs, for those who continue to work. That is a good thing! However, the trade-off is that this scenario also complicates the already complex decision-making process that everyone goes through when deciding to enroll in Medicare.

While this might seem like a lot to consider – and it is – you don’t have to feel intimidated or overwhelmed. Instead, consider asking clients the following questions to help them think through some important factors when deciding whether to delay enrollment in Medicare if they continue to work past age 65.

Will you continue to have access to employer-provided health coverage?

In most cases the answer will be yes, and that is because the Age Discrimination in Employment Act prohibits employers with 20 or more employees from cancelling group health coverage for current employees due to age, even when they turn 65 and become eligible for Medicare. Certain state laws may also prohibit even smaller employers from doing so.² Consequently, if employees receive employer-provided health coverage immediately before age 65, they will most likely continue to have that same access after reaching 65.

However, there is one big exception to the generalization above, which is that it may not apply if they intend to cut back to part-time. Many employers provide employer-provided health care to only full-time employees, so if they cut back to part-time, they may lose eligibility for coverage. If any of your clients plan to cut back to a part-time schedule once they reach age 65, encourage them to check their employer plan’s eligibility requirements to determine whether delaying Medicare enrollment is even an option for them.

Assuming they answered yes to this first question, the next question is:

Why should you remain enrolled in your employer-provided plan?

There are a few reasons. The first is that individuals are permitted to enroll in Medicare even if they continue to have employer-provided coverage. In this circumstance, they are doubly covered for a relatively cheap price because Medicare Part A (hospitalization) is usually free, Medicare Part B (outpatient services) premiums are relatively inexpensive, and their employer-provided coverage is priced at group rates and usually subsidized by the employer.

Another reason to keep employer-provided coverage is for their spouse. Remember, that unlike most employer-provided coverage that also covers a spouse, Medicare enrollment is always done on an individual basis.

Take, for example, a “stereotypical” married couple with a male breadwinner who reaches age 65 and decides to retire. However, his wife who is five years younger, has always been covered by his employer’s plan. She has a history of breast-cancer. Although if she had to, she could find coverage in the Federal Marketplace established under the Affordable Care Act, that coverage would be a lot more expensive than the employer-provided insurance that covered both spouses in the past, and the individual health plan for her may not include the specialists that she knows and trusts. As a result, the husband delays retirement and continues to work full-time so that he retains access and eligibility for himself and his wife under his employer’s plan.

Based on what you have read so far, it seems like having double coverage (i.e., employer-provided coverage plus Medicare) for those clients who work past age 65 makes a lot of sense; and it does.

However, there is another question to consider:

Under what circumstances should you delay Medicare enrollment?

If the employer-provided coverage is a high deductible health plan and your client wants to continue contributing tax-deferred dollars into their health savings account (HSA) to pay for current or future medical care on a tax-free basis, then they must delay enrollment in Medicare. This is because the IRS does not allow an individual to contribute to an HSA when they are enrolled in Medicare. This rule applies even if your clients enroll only in premium free Medicare Part A. So, if they want to keep contributing to an HSA past age 65, they must delay enrollment in Medicare.

After thinking through the answers to the questions above, here is a final question to consider:

What should you watch out for if you delay enrollment in Medicare?

If your clients delay Medicare enrollment for any reason beyond the 7-month Initial Enrollment Period (which consists of the three months before their birthday month, their birthday month, and the three months following their birthday month), then they will have to enroll in Medicare at a later point during a Special Enrollment Period (SEP) in order to avoid Medicare’s late enrollment penalty and a possible gap in coverage. That SEP will last 8 months, beginning the month following when their employer-provided coverage ends, whether that’s because they cut back to part-time and lost eligibility status under their employer plan or they stop working altogether.

Finally, if they delay Medicare enrollment to remain eligible to contribute to an HSA, note that when they eventually enroll in Medicare, there is a 6-month retroactive effective date under Medicare Part A. So, they will need to cease contributing to their HSA at least 6 months before they eventually enroll in Medicare; otherwise, their HSA contributions made during that 6-month period will become subject to a tax penalty if they are not quickly removed.