When it comes to delaying Medicare enrollment, the key to avoiding late enrollment penalties is having what Medicare considers creditable coverage elsewhere - and that generally means an employer-sponsored plan at a company with at least 20 employees.
The short answer to this question is: No, you don't have to sign up for Medicare as long as you have creditable coverage elsewhere. However, deferring your Medicare coverage to a later date while you have private insurance can be a bit tricky. If you plan to not sign up for Medicare due to your private health coverage, you need to make sure that you understand how to do this, as well as what all of the relevant timelines and conditions are.
We’ll discuss all of that and more, so you can know what to expect when your enrollment comes around.
How Does Initial Enrollment Work?
Most people will become eligible for Medicare on the month that they turn 65. Your 65th birthday will trigger the Initial Enrollment Period, during which you can enroll in Medicare with no additional fees. For most, this will be a fully automatic process if you are already receiving Social Security benefits.
Initial enrollment allows you to enroll in Medicare Part A, Medicare Part B, Medicare Part C (Medicare Advantage), and/or a Medicare Part D prescription drug plan.
This period lasts for 7 months in total. This includes three months before your birthday month, the birthday month itself, and three months after. You will receive information in the mail about your enrollment. If you are already receiving Social Security or Railroad Retirement Board benefits, your coverage will begin automatically during your birthday month, and Part B premiums will be taken automatically from your Social Security check.
Medigap and Initial Enrollment
Medigap plans, also known as Medicare Supplement plans, are also available during something known as the Medigap Open Enrollment Period. This is distinct from the main Open Enrollment Period from October to December of each year.
The Medigap Open Enrollment Period begins on the first day of the month that you are at least 65 and enrolled in Original Medicare. If you enroll in Medicare during your Initial Enrollment Period, then your Medigap Open Enrollment Period will begin when your enrollment begins.
Medigap plans don't cover your medical care directly but instead cover out-of-pocket costs. This includes things like your deductible, coinsurance, copayment, and other fees.
Reasons to Delay Medicare Enrollment
Although Medicare provides ample coverage for most Americans who qualify, some people who have a good private plan don’t want to make the switch quite yet. If you are on a private health insurance plan from your employer, Medicare won’t charge you any late penalties if you wait to enroll.
This can be a good idea for those who like the insurance they have now and don’t want to make the switch. Another common reason for delaying enrollment is having children under 26: they can receive benefits through your employer coverage, but not under Medicare.
All of the above remains true even if you are covered under an employer-based group health plan through your spouse's employer.
Another reason to delay coverage is to prolong the period during which you pay the Medicare Tax. If you are close to paying the Medicare Tax for 40 quarters, waiting until you pass this limit can result in premium-free Part A health insurance.
What Happens When I Lose My Private Medical Insurance?
If you do not want to enroll in Medicare as you become eligible, you will likely still want to enroll sometime down the line. For most people, this time comes when they retire or lose their employer-based health plan. In this situation, you will be able to enroll in Medicare fairly easily.
Losing your private health plan triggers something called a Special Enrollment Period. During this period, you will be able to enroll in Medicare without any penalties. If you are covered by insurance from your spouse’s employer and their coverage ends, the conditions will be the same.
If you don’t enroll in Medicare during your Special Enrollment Period, then you can face late penalties and may experience a gap in coverage. Enrolling during your Special Enrollment Period should be a high priority for anyone who defers their Medicare coverage past the Initial Enrollment Period.
What About COBRA Plans?
Medicare doesn’t consider COBRA plans to be employer-based health plans because, by definition, you are no longer ACTIVELY employed if you qualify for COBRA. If you have a COBRA plan at the time that your initial enrollment begins, you will face a late penalty if you defer your Medicare coverage.
This will also happen if you transition to a COBRA plan after you’ve already deferred your coverage. Once your main group plan coverage ends, your Special Enrollment Period begins. If you then enroll in a COBRA plan and wait until after your Special Enrollment Period to enroll in Medicare, then you will still have to pay the late penalty.
What Is the Late Penalty?
The late penalties for Medicare vary between the two parts of Original Medicare. Let's go through them one by one.
Part A Late Enrollment Penalty
The Part A late enrollment penalty is 10% of your monthly premium, no matter how long you have delayed enrollment. However, you have to pay the late penalty for twice the number of years that you delayed enrollment.
For example, if you delay enrollment for two years, then you will pay an additional 10% in premiums for four years.
Many people receive Part A premium-free. In this case, you should simply enroll in Part A no matter what other insurance you are covered by.
Part B Late Enrollment Penalty
The Part B late enrollment penalty is more serious than the penalty for Part A for two main reasons. First, the penalty gets higher the longer you wait, and second, the penalty lasts the entire time that you have Part B coverage.
The Part B late enrollment penalty is 10% for each 12 month period that your coverage was delayed. So, if you enroll in Part B four years after your enrollment began without sufficient reason, like being covered by a group plan, then your premium will go up 40%. This will be the case for the entirety of the time that you have Part B, so it’s very important to avoid it!
What About Health Savings Accounts?
Although you can generally delay your coverage without penalty if you have an employer-based private healthcare plan, health savings accounts are a special case. You cannot have a health savings account and Medicare at the same time, while you can be enrolled in Medicare at the same time as your private plan.
Medicare offers Medicare Savings Accounts for those who are interested in this option. Medicare Savings Accounts function very similarly to HSA’s and are a good option to look into if this is the type of coverage that you prefer.
Final Thoughts on Medicare and Private Insurance
Most retirees who can enroll in Medicare do so as soon as possible. However, if you are part of the minority who want to retain their private health insurance, then you have nothing to worry about.
Whether you want a Medicare Advantage plan, plain Original Medicare, or a Part D prescription drug plan, the main thing to remember is to keep your enrollment periods straight.
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