If you are still working when you turn 65 and become eligible for Medicare, you have a big decision to make. Should you keep your employer health plan? And if so, should you also enroll in Medicare? How do the two plans coordinate? Would it be cheaper if you leave the company plan altogether and choose Medicare instead as your primary insurance?
These are some common questions. It can get pretty tricky, so let’s walk through some of the key things you need to look at.
This discussion is for employees working for small companies that have less than 20 people. If you need help with Medicare coordination for large employer plans, click here.
Medicare is Primary when your Employer Has Less than 20 People
Since Medicare will be primary, most people should enroll in both Medicare Part A and Part B at age 65. Your group insurance will pay secondary to Medicare. Here’s how that works:
Part A – If you have a hospital stay, Medicare Part A has a deductible of $1316 in 2017. If your employer’s plan deductible is $2000, then Medicare pays the difference. The hospital will bill your group insurance after it receives Medicare’s payment. You would then only owe the $1316 of any Part A covered charges.
Part B – After a one-time annual deductible of $183 in 2017, Medicare Part B will pay 80% of your outpatient bill. Your provider can bill your group insurance for the other 20%, and that insurance will pay what its scheduled benefit. Sometimes this means you end up a copay here and there that you are responsible for.
Is there any reason why I wouldn’t want to enroll in Part A?
In most circumstances where your employer has less than 20 people, you should enroll in both Part A and B. If your employer group plan has a high deductible and you have a health savings account that goes along with that, be advised then that you must stop contributing to that account even though you may keep the employer insurance as your secondary. Your accountant can explain the rules about not contributing into a health savings account after you activate Medicare.
Should I sign up for Part B? What happens if I don’t enroll in Part B?
By law, your employer group insurance only has to pay after Medicare first pays as your primary insurance. So if you fail to enroll in Part B, you could be responsible for the first 80% of the bills that Medicare would normally pay. Your group insurance only has to pay what would be leftover IF you had been enrolled in Part B.
We once had a caller who told us that his previous agent did not advise him of this. He was unaware of it until he ended up owing 80% of the cost of a knee surgery!
This is a terrible situation to find yourself in. What’s worse is that you might be subject to the late enrollment penalty for Part B (10% per year for every year that you waited to enroll) if you wait and enroll in Medicare later on.
Are there Exceptions?
YES, and it adds to the confusion. SOME employer group health plans currently CHOOSE to pay around Part B even if you don’t have Part B. At the time of this article, there is at least one insurance company here in Texas that will pay as primary if you decide not to enroll in Part B. This could save you the cost of enrolling in Part B now.
On the other hand, there is no guarantee that the insurance company will continue this. It could change at any time, without warning. Furthermore, there is no rule that says that Medicare has to accept that coverage as creditable coverage for the late enrollment penalty. Having done this job for many years, I have seen cases where the Social Security office did not accept this coverage as creditable and applied the late enrollment penalty to a client, and the Medicare beneficiary (you) got stuck with a 10% higher Part B premium for life. Another agent I know had a client whose insurance carrier discovered she had failed to enroll in Part B and retro-actively billed her over $100K in cancer treatment bills.
I have also seen the exact opposite where a client fully expected a 30% penalty for having waited 3 years to enroll, and no one at Social Security caught it. No late penalty applied. He was lucky.
My recommendation is to err on the side of caution. Go ahead and enroll in Part A and Part B now. Having both Medcicare and your group insurance will mean less out of pocket costs for you, so it is generally worth the expense of the monthly Part B premium. Working with an agent to help you analyze all the costs, pros and cons for your particular situation can also help you arrive at the right decision.
Deciding Whether to Keep your Group Insurance as Secondary to Medicare
Often we find that at small companies, the employees are paying a substantial amount for their group coverage. Then they also still have deductibles to meet and copays to pay on that employer plan. You have the option to enroll instead into a Medicare supplement plan and a Part D drug plan, or a Medicare Advantage plan. It is often cheaper to do so.
Over the years we have assisted many people who were paying hundreds of dollars for a group plan with a huge $5000 deductible and $40 doctor copays. These people transition onto Medicare and pay less for their health insurance. If they choose a Medigap Plan F, they now also have essentially $0 deductible and $0 copays. They will have drug copays under Part D, just as they had copay for medications on their group insurance, but compared to their healthcare expenditures before, Medicare is a blessing and a relief.
Get Help with Medicare and Group Insurance
A good agent can help you carefully analyze the costs to stay on the group insurance, or leave the group insurance. Looking at medication costs under Part D, as compared to the group insurance, is an important part of this analysis. Need help? Reach out to us today for help analyzing your choices.