If you have medical insurance when you turn 65 and qualify for a Special Enrollment Period (SEP), you can delay Medicare enrollment without late penalties if you havecreditable coverage. In this post, we tell you what Medicare means bycreditable coverageto help you avoid a lifetime of late fees.
What Does Medicare Mean by Creditable Coverage?
If your plan pays, on average, the same amount that Medicare does, it is said to offer creditable coverage.
If you have an employer or union plan that provides prescription drug coverage, the Medicare Modernization Act requires your insurance carrier to notify you whether you have creditable coverage. This is called the notice of creditable coverage. You should receive it when you first join the plan. Your insurance carrier should also send you one every year, before Annual Enrollment begins on October 15. Look for it in September.
Keep each notice you receive. When you finally enroll in Medicare, they will protect you from owing late penalties. That's because you'll have to prove you had creditable coverage for the entire period that you delayed enrollment.
What Employer Plans Qualify as Creditable Coverage?
Employer plans qualify as creditable coverage as long as the organization employs at least 20 people. You must also be an active employee. That means that your coverage ceases to be creditable as soon as you retire. If your group health plan is courtesy of your spouse's employer, then your spouse must be the active employee.
Working after age 65 is probably the most common scenario that qualifies you for a Special Enrollment Period if you delay Medicare enrollment.
What Happens if You Have Creditable Coverage and Enroll in Medicare?
You may choose to enroll in Medicare even though you already have creditable coverage. In this case, your employer-sponsored plan is your primary insurance and Medicare is your secondary carrier.
Most people get premium-free Medicare Part A. However, you still owe your Part B premium, even if Medicare is your secondary insurance. But, with Medicare plus your employer-sponsored plan, you likely have very little out-of-pocket costs.
You may also choose to enroll only in Part A, particularly since you likely have no monthly premium. With Part A supplementing your employer plan, your out-of-pocket for hospital care should be extremely low (or even zero).
Please note that, if you contribute to a Health Savings Account (HSA), you cannot enroll in any part of Medicare, including Part A. However, if the HSA is your spouse's, he or she may continue contributing as before, even after you sign up for Medicare.
Insurance Plans That Do Not Qualify as Medicare Creditable Coverage
Even though most of the following are considered high-quality insurance, they do not qualify as Medicare creditable coverage for Parts A and B. In some cases, though, they qualify as creditable coverage for Medicare Part D. Review your notice of creditable coverage to be sure.
The following do not qualify as creditable coverage for Medicare Parts A and B:
- ChampVA: To keep your ChampVA benefits and avoid late penalties, you must enroll in Medicare.
- COBRA: You must enroll in Medicare within 8 months of starting COBRA if you want to avoid late penalties.
- Retiree insurance: To avoid late penalties, you must enroll in Medicare within 63 days of retiring.
- TRICARE: You risk losing your TRICARE benefits if you wait to enroll in Medicare until after you turn 65. You also face late penalties.
Small Employer Group Health Plans
If your employer employs fewer than 20 people, it is not creditable for Original Medicare (Parts A and B). Your group plan may qualify under Part D, though. Check the notice of creditable coverage or talk to your benefits administrator to be sure.
To avoid paying late penalties, you'll need to enroll in Medicare as soon as you become eligible. If you decide to keep your employer-sponsored plan, it becomes your secondary insurance. And, even though you'll pay premiums for both, it may still be less expensive than the 20 percent you'll pay for Medicare co-insurance. It depends on your healthcare needs and the cost of your group health plan.
Federal Employee Health Benefits (FEHB)
It may surprise you to learn that Medicare does not consider FEHB to be creditable coverage. Having FEHB coverage won't protect you against paying late fees for the rest of your life, so compare your costs carefully when deciding between the two options.
Benefits Through the VA
VA benefits count as creditable coverage for Medicare Part D but not for Parts A and B. Most insurance experts – including the Department of Veterans Affairs – suggest you enroll in both VA and Medicare. (And if you have TRICARE for Life, you must enroll in Parts A and B.)
To avoid late penalties, you should enroll in Medicare as soon as you become eligible. Inform the VA as soon as you enroll in Medicare. Also, let your providers under both programs know so that they can coordinate your healthcare.
Managing your care is fairly simple. To use your VA benefits, go to a VA doctor. To use your Medicare benefits, go to a Medicare-approved provider. Follow any further guidelines if you have a Medicare Advantage plan.
Most vets choose to rely on their VA prescription benefits rather than enroll in a Part D plan.
Is Creditable Coverage Better than Medicare?
Creditable coverage doesn't mean better coverage. It doesn't even mean cheaper. You could have lower out-of-pocket costs AND better coverage with Medicare. It's always a good idea to weigh all of your options and see which choice offers the best coverage at the best price. Our Find a Plan tool lets you compare options easily.
Find a Medicare Plan in your area
It's FREE with no obligation